Maximize the value of your business before selling
Forward planning and preparation, ideally a few years in advance, will increase your chance of getting the very best price for your business. Whether you’ve already found the right buyer, looking to list your business for sale, or you are handing it over to family, you’ll want to increase the price as much as you can as a reward for all the hard work you’ve put in.
Reassure the buyer
A good starting point is to put yourself in the mind of a potential buyer. Having a business that makes a good profit might seem to you the easiest (and most obvious) way to appeal to a buyer, but it’s not the only measure. There are many other concerns that will likely to run through a buyer's mind – some of which are harder to fix than a drop in profit.
In any initial pre-sale document or discussion, a prospective buyer is likely to want to know if:
- existing customers will stay when you leave
- you’ll sign a non-compete clause
- the business systems and processes are efficient and documented
- key staff will remain after the sale
- the business or industry is growing
- there are high barriers to entry for possible competitors
- the business will continue to produce a strong cash flow
- new technology or innovations will help make products and services future-proof
Develop an operating manual
Documenting everything you do in the form of an operating manual will help a buyer see how the business operates. This should contain all the working guidelines, policies and procedures that are used to effectively run your business on a day-to-day basis.
- details of how the work is carried out, such as invoicing or shipping
- which marketing tactics have worked best and how you’ve kept your best customers
- what financial tools you use to monitor the business
- the systems you’ve developed for efficiency
- the most important customers and the relationship
Record as much about your business as you can; it means you can hand over a manual showing how your business works and all the success factors and trading tactics you’ve used to make money. An operating manual increases the value of your business as it helps the business become more of a ‘turn-key’ operation where things are all ready to go.
Fix anything that needs fixing
You’ll increase the value of your business by making sure all the little things are fixed before a new owner looks at things in-depth.
For example, you should look at:
- restructuring any debt and considering how this will look on your balance sheet. It could be useful to amend business loans to move them from short-term to long-term debt (or vice versa)
- update signage and marketing material. A good first impression when buyers come to view your business is crucial
- review internal processes such as ways you collect your cash faster. Improve them if you can. It could be something as simple as being able to collect mobile card payments on the spot
- make sure that your administration systems are as automated as possible. For example, you should be using accounting software to track the business finances, rather than a spreadsheet
Groom the business
Like selling a home, the better the business is presented for buyers' first impressions, the better your chance to get the best price. When you're preparing your business for sale, it's important to:
- forecast your expected net profit over the coming year to demonstrate how healthy your business is. If you need to, take steps to improve your bottom line ahead of listing the business for sale
- improve your working capital position by selling under-used equipment and assets. Efficient stock management and tighter credit control will also improve working capital
- improve your rates of returning customers by improving the customer experience so they want to keep coming back
- tidy up your tax records which should all be either paid or accounted for
- review staff and inventory levels to see if there are any efficiencies in reducing these costs while maintaining sales levels and quality
- tighten debtors and show that your cash collection is under control
- have formal agreements with suppliers to make sure they will continue to supply the new owner
- consider implementing incentive schemes to encourage key employees to stay with the business
- tie up any loose ends. For example, if your lease or other operating agreements are due to expire soon, make sure they are renewed, or you can renew
Outline your competitive advantage
Any prospective new owner will value your business more highly if they are confident it will continue to grow and provide a healthy return on their investment. They will be comparing it against the competition and looking for compelling reasons why your business will be more profitable than the alternatives.
You will maximize the value of your business if you can clearly demonstrate that your business has a strong competitive advantage:
- collect testimonials and evidence from existing customers detailing why they chose your business
- create a competitor SWOT analysis (outline their Strengths, Weaknesses, Opportunities and Threats) which profiles what the competition does well, and where they are falling
- develop a unique selling point. What your business does better than any direct competitor
Getting the best price for your business means planning well in advance, even if the sale is years away. It's also essential to spend time getting your business into top shape – even restructuring it, if necessary, to make it more attractive and the sale more tax-efficient. Lean on your advisors for advice to help you make a plan.