Send to friend

Download the article: 

Maximizing-Business-Sale-Value.pdf

Far too many businesses are sold for less than optimum value. You’ve put everything you have into your business, and the same kind of attention should be paid to its evolution and your exit.

Potential buyers won’t flock to your business simply because you put up a sale sign. Selling a business requires a good amount of knowledge and a lot of legwork.

Contact us now for a FREE CONSULTATION: We promise to listen and help you sort through the options. Or call us at +1 (604) 909-1271.

Maximize Sale Value by Preparing NOW

There is nothing like the power of NOW. The key is to prepare before you face an unanticipated event that forces you to sell, such as illness, injury, loss of a key partner, industry challenges, family issues or many others. If you are planning to sell your business in the next few years, start to prepare your business and yourself now so you can exit on your terms and maximize sale value.

Regardless of the state of the economy and your industry, there are many things you can do to improve your business's appeal to buyers before the sale. While many of these things take time, they are also good business practices. Your reward is confidence in knowing you can attract the interest of more qualified buyers and maximize sale price. You will also know that you are passing on the business in the best possible condition.

1.    Making the Decision to Sell

Well before you actually begin the process of selling your business, ideally 3 to 5 years, you should define your personal expectations, your priorities and determine what selling options you want to pursue. While compromises are sometime necessary to get your price, you need to know your objectives.  These include: 

• Do you want an all cash deal, walking away without ties to the business?
• Can you finance part of the sale, which can help maximize sale price?
• Perhaps you have family members who you want to succeed you?
• Should you exchange tax advantages for a lower purchase price?
• Perhaps you want to nurture an employee who is willing to take over the business?
• If retirement is the next step, how much money will you need?
• Are you moving on to another venture, or staying connected to the business?

2.Get the Business Organized
 

• Take time to prepare your business before presenting it to buyers. Looking at your business from the perspective of a potential buyer will reveal things that need to be changed.  Some key steps in organizing the business are:
• Get all important business documents current and in proper order, including using audited or review and engagement financials
• Clean up your accounts receivable and reduce accounts payable
• Reduce your long-term debt
• Clear up any pending lawsuits, HR problems, insurance issues, lease or permit issues, etc.
• Develop or update an annual business plan using at least three year sales projections
• Document processes specific to the business
• Build a transition document that is updated over time
• Keep records updated and available for easy access:
  • Customer Records/Lists
  • Contract Agreements
  • Inventory Records
  • Legal Documents
  • Employee Records and Payroll
  • Intellectual Property Documents (e.g. patents, trademarks)
  • Personal Expenses

3. Ensure the Business is Properly Structured

Whether you have a holding company, subsidiary structure, a trust structure or a partnership, it is important that the structure is easy to understand and attractive to buyers. The structure should also take into account any tax consequences that may result from the sale of the business.

4.Evaluate Current Business Value
 

Knowing what your business is realistically worth today sets a benchmark to work from, sets goals and prepares for contingencies. Factors used in determining business value include:

5. Focus on your Role as a “Strategic Leader”
 

A buyer wants to buy a business – not your job.  From a buyer’s perspective, it is better if the business is self-sufficient and the current owner is not critical to future success.  These steps can help you focus on strategic leadership: 

• Plan the future of your business and leave day to day tactical decisions to others
• Seek advice and expertise of professionals to move your business forward
• Separate business decisions from your personal life and manage emotional attachments and old habits that place you in day to day operations too often

6.Make Tactical Financial Decisions
 

Critically evaluate your overall financial situation and seek professional advice to plan your future.   Make tactical decisions such as protecting personal reserves, avoiding personal or long-term loans and avoiding credit lines where possible. Ensure that you have sufficient cash flow in your business to meet payroll, rent and other mandatory expenses.

7.Improve Business Value Long Before the Time of Sale
 

First, Improve Your Cash Flow!

Cash flow management is the process of monitoring, analyzing, and adjusting your business' cash flow. Cash is the oxygen that enables a business to survive and prosper and is a primary indicator of business health. Some key steps to improve cash flow that can be taken working with your professional accounting advisors are

• Develop a cash flow monitoring system, including centralizing or pooling cash across units.
• Develop a plan to identify and remove profit leaks, such as initiatives and projects not contributing to the company’s most critical objectives, redundant or non-competitive processes, low ROI marketing activities and outdated technology.
• Invoice promptly when a product or service is sold and invoice billable hours twice a month.
• Become more innovative about receivables by reviewing customer/client credit policies and credit history, offering financing only to credit worthy or strategic customers, getting a percent upfront, giving rewards for early payment and aggressively collecting receivables.
• Strategically manage payables, pay all bills when due and ask for a discount, rebate or reward for all early payments.
• Manage inventory risk by renegotiating for more profitable supplier terms, removing obsolete and slow turn over inventory and valuing remaining inventory at current replacement cost.
• Adjust your balance sheet to write off loans the company made to you, write off accounts uncollectable and remove debt that will not be assumed by the buyer.
• Other miscellaneous steps include reducing excess expenses such as office supplies, utility, telephone and travel expenses, negotiating better pricing on advertising space, improving tax credits with charitable donations, reviewing software licenses and needs, re-negotiating service contract costs and reducing attrition costs with effective retention tactics.

Second, be Creative about Product Mix & Pricing:

• Identify competitively valued services & products that will garner a higher margin
• Consider bundling/unbundling services
• Launch lower priced versions of core existing products
• Bring in cash by offering lease or subscription services

Third, aggressively manage your top line revenue

• Focus on getting more business from existing customers
• Manage customer experience
• Revisit sales incentives and score customer profitability to improve your sales strategy

8. Maintain Competitive Market-share
 

Buyers generally want to invest in a company that will provide them with a good return on their investment based on proven earnings and are willing to pay more for a business that has a positive trend and outlook. Focusing on long-term growth and profitability will catch the attention of more buyers. A key success factor is the ability to consistently nurture current customers while attracting new customers. A good customer plan will include at least the following elements:

• What your key value proposition is versus the competition
• How much that value is worth
• Who are your most profitable customers
• Who are your targeted customers and customer segments
• How will you reach your customers
• What products or services they need
• What value they expect

9. Develop & Secure Key Talent Assets
 

Your strongest competitive asset is often your people.  A competent and agile workforce enabling you to effectively navigate transitions is a godsend to many buyers. If you are absolutely vital to your business, consider whom else will a buyer turn to for help running the business after you leave? A succession plan can help you evaluate skills of all management team members, identify those with high potential and create a development plan. Employment contracts should be well drafted and checked against relevant industrial awards. You should also ensure your business is not dependant on you, or another "key person", and that there are the right people, systems and protocols in place to ensure it will remain profitable after the buyer has taken possession of it.

10. Protect Intellectual Property
 

Intellectual property such as trademarks, patents and copyrights should be registered where appropriate through the proper legal process.

11. Clean up Potential Liabilities
 

Clear up pending or potential legal problems. This can be a roadblock to a share sale. A buyer who purchases only the assets of your business generally won’t get stuck with inherited legal problems; however, the very existence of lawsuits or other problems may raise red flags in potential buyers minds or turn them off.  Take care of any outstanding tax audits, product liability claims, employee lawsuits, insurance disputes or environmental issues.

12. Create an Advisory Team
 

Build a team of trusted advisors who will help you move the business forward to maximize value and guide you successfully through the entire sale process. These often include:

• Accountant
• Business Coach
• Financial Planner
• Insurance Expert
• Lawyer

IN SUMMARY

The bottom line is to groom your business through the eyes of a prospective buyer.  The decision to sell your business will be driven by your personal and financial objectives. However, it’s good business sense to recognize that life and business can be unpredictable.  Events and opportunities can unexpectedly arise, and you can find yourself pursuing a sale earlier than you had wanted. The investment you make in planning will be well worthwhile and give you the peace of mind of knowing that you are able to respond to events quickly and from a position of strength.