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10 Effective Ways to Raise Business Value Before Selling

Your business is your baby. Before it even got off the ground, you had a clear vision of the end result. Over the years, you nurtured it and watched it grow and thrive. All along, you knew the time would come to let it go, but like most entrepreneurs, you’re bound to encounter a common roadblock at this point. To you, this company you built from the ground up and drove to success is priceless. Unfortunately, prospective buyers approach the matter from an entirely different perspective.

Determining the True Value of Your Business

When the time comes to sell your company, calculating its worth takes a more neutral tactic. This is where business valuation comes in. Several different strategies are used to determine a business’ value, and a wide range of factors are figured into the equation, such as:

  • Price versus earnings
  • Future revenue potential
  • Past gains
  • Assets after liabilities are subtracted
  • Multiplying share prices by shares outstanding

These are only a few of the common aspects considered when figuring a company’s true. Various calculations can be used, and industry, size of a business and other elements work their way into the mix as well. Once the numbers have been crunched, many entrepreneurs find their business’ market value is quite a bit less than they’d imagined. If that’s the case, certain steps can be taken to boost your company’s financial appeal before actually placing it on the market.

Effective Ways of Boosting Business Value

Though you’ve most likely invested a great deal of time, energy and capital into your company, there’s always room for improvement. This is especially true in the eyes of prospective buyers. Plenty of measures can be implemented to raise your business’ value before placing a “For Sale” sign out front. Some of them are more costly than others, but all of them are sure to generate a noticeable ROI.

1) Set Yourself Apart

In the business world, being unique carries a great deal of weight in its own right. Consumers tend to appreciate distinction when looking for a company to do business with in terms of products, services, customer support and a range of other aspects. Public interest gives potential buyers greater incentive. With that being the case, they’re going to look for businesses capable of holding their own in their niche.

Today’s business landscape is so fraught with competition, even the smallest detail could be the one that propels your company to the top. Any aspect setting you apart from others in your field is crucial to success, but it’s equally vital to drawing buyers’ attention.

Research your top competitors to better understand their weaknesses as well as your own. Improve upon your shortcomings and play on your strong suits to further boost your status in your industry. Purchasing prospects are sure to take notice and respond with more lucrative offers.

2) Promote Your Strengths

Plenty of people are uncomfortable with self-promotion, but in the business world, it’s a must. Refining your products and services goes a long way toward building business value; still, some assets can’t be seen on the surface. In some cases, those underlying elements are the ones in which buyers may be most interested.

Have you patented a product competitors are trying desperately to imitate? Are you dominating a seemingly tiny sector of the market others can’t seem to reach? Does your research and development team have a revolutionary idea in the works that could prove incredibly profitable to future owners?

Be sure to let potential buyers know about those unseen aspects. Keep in mind, though, it’s only empty bragging if you can’t back it up. Have clear documentation to support your claims and concepts.

3) Streamline Your Operations

Efficient businesses are productive ones, and productivity tends to boost profits. Do a deep dive on the internal operations of your company, and evaluate it from every possible angle. Bringing in an efficiency expert could work wonders in this regard.

Man reading a financal plan

Whether you do this on your own or turn to a professional for help, the ultimate goal here is to find areas where your business is faltering. Then, develop and implement new practices to make things flow more smoothly.

Doing so should ramp up productivity and revenue while lowering the cost of operation without sacrificing quality. All these elements add up to higher earning potential and lower overhead, both of which are highly attractive to potential buyers.

4) Hand over the Reigns

If you’re like many entrepreneurs, you’re an integral component of your business. While there’s nothing wrong with inserting yourself into every aspect of the company, it could bring up a red flag in the eyes of prospects. They’re most likely going to be leery of buying a business if it stands to crumble once its current owner is out of the picture.

No one is saying you have to walk away before placing your company on the market, but it’s important to start weaning the business off your guidance and vice versa. Create a detailed hard copy of daily operations for future owners’ reference. At the same time, be sure everyone in the company’s hierarchy is well-versed in specific procedures and protocols. Pass your knowledge and experience on to someone qualified to oversee the business in your absence.

You can still play a fundamental role in the company right up until it’s signed over to a new owner, but make sure it can run smoothly without your help as well. Seeing the business is capable of retaining its strength when you’re gone is sure to be a significant confidence boost for prospective buyers; as such, they’ll probably be motivated to make a higher offer.

5) Bring in New Customers

Long-running customers are critical to all businesses regardless of size or industry, but having a steady stream of new ones is also vital. Creating a nice balance between the two ensures continual cash flow and keeps the company from growing stale. Targeting new prospects is the key to generating fresh clientele, so ramping up your marketing efforts is bound to boost potential buyers’ interest as well as your company’s market value.

6) Don’t Ignore Existing Clients

Whether they’ve been with a company for a month, a decade or several generations, repeat customers form a strong foundation for any business. After all, being able to retain clients shows newcomers you’re worthy of their attention. It also proves to prospective buyers you’ve developed ongoing sources of revenue they can count on.Man typing on a laptop with a business suit case

While you may not necessarily need to market to long-time faithfuls, they shouldn’t be ignored. Your continued marketing efforts will carry over to the next owner, offering benefits from a couple different angles. For one, those customers will have a certain level of reassurance they won’t be taken for granted once new ownership takes over. Secondly, prospective buyers will feel more confident in those clients remaining loyal to the brand rather than its founder.

7) Pay Special Attention to Prospective Clients

As you’re well aware, customers fall into a wide range of areas along your sales funnel. Those further along in the process play a key role in not only your bottom line, but that of potential buyers. They’re already primed for conversion, and they’re far closer to becoming paying customers than those just beginning to take an interested in your products or services.

Place extra effort in closing all those pending deals before setting an asking price for your business. Also emphasize follow-ups with any newly integrated customers for retention purposes. Having a diverse and dynamic clientele gives possible buyers plenty of variety to work with.

8) Keep Moving Forward

Continuing to invest in a business you’re planning to sell might seem counterproductive, but nothing could be further from the truth. Letting your company stall out will cost you in a number of ways, not the least of which is incoming revenue before ownership changes hands.

Don’t stop forging ahead just because you’re putting the company on the market. Keep updating equipment, improving manufacturing processes, developing new products and services and carrying out other upgrades just as you would under normal circumstances. Continue funneling funds into new marketing campaigns and SEO strategies as well.

Ignoring all these aspects will only lead your business to fall behind the competition. It’ll grow stale in the eyes of customers and prospects, causing your clientele and cash flow to run dry. In turn, it’ll lose a great deal of luster for potential buyers. Aside from seeing dwindling profits, they’ll be repelled by the thought of having to make numerous upgrades on their own after purchasing your business. Though these issues may not be deal breakers, they’ll definitely lead to much lower offers.

9) Hold onto Your Workforce

TeamFully trained and qualified employees hold a great deal of power. Regardless of rank, they’re the backbone of any company. Having to train an entirely new team generally spells losses for pending business owners where both time and profits are concerned, so don’t send your personnel packing if you’re planning to sell your business.

Giving prospective buyers a well-trained and highly skilled crew to work with once they take over provides a great deal of stability and assurance. Granted, some new owners wipe the slate clean and start from scratch when they acquire a business, but this should be their choice. Don’t make the decision on their behalf because it could add up to greater losses for you as well as them.

10) Give It a Facelift

This could easily be one of the least costly but most profitable options for heightening the value of your business. It’s an age-old tactic of the real estate world and has helped countless property owners ramp up their going rates.

interior of an business comapnyPlenty can be said for the power of fresh flooring and a new coat of paint. Spruce up warehouses and manufacturing spaces if applicable. Have your reception area renovated or new fixtures installed. Little changes can go a long way toward making a business more attractive to buyers.

On the outside, make sure parking areas and driveways are in good repair. Have new landscaping features incorporated across the property and give your company’s exterior a modern makeover. First impressions are crucial, so improving curb appeal is sure to help your bottom line.

Businesses operating solely on an online basis aren’t out of luck here, either. Virtual storefronts are just as important as physical ones. Having your website redesigned and thoroughly tested to ensure all its links are working as they should may very well help draw in higher bids from potential buyers. Since online presences are immensely and increasingly important to today’s businesses, this could be a positive pre-listing move for any company.

Bottom Line

When you invest your heart, soul and savings into taking a vision from the concept stage to a fully operational enterprise, the fruits of your labor are bound to be priceless in your eyes. Once the time comes to move on to the next phase, though, countless entrepreneurs are stunned to discover their businesses are worth quite a bit less than they expected.

Several different factors go into determining the value of a business when it goes to market. Even the most successful and profitable companies often fall short when the valuation results come in. If you find yourself in a situation like this, you don’t have to settle for less. Certain steps can be taken to boost your business’ worth.

Set yourself apart from others in your niche both on the surface and through underlying aspects. Increase efficiency in every way possible to improve productivity and profitability. Give your business the capacity to operate without your intervention. Foster relationships with customers and prospects in every level of your sales funnel. Don’t stop forging ahead with new ventures. Renovate the company itself rather than its workforce.

Some of these measures require a certain amount of effort on your part whereas others depend on leaving well enough alone. All focus on promoting strengths, transforming weaknesses into assets, lowering operational costs and spurring earning potential. In doing so, you’re guaranteed to heighten your company’s value in the eyes of prospective buyers.

 

CC Flazingo Photos Flickr

Why Business Owners Sell Their Business

As an entrepreneur, the penultimate day of your life is the day you hand over your baby to someone else. Baby being your own business that you’ve built from the ground up. Making the decision to sell a business you’ve invested so many years of blood, sweat & tears into is incredibly difficult.
Depending on the circumstances, it can be either a deeply positive or a deeply negative experience – but it’s almost ALWAYS an emotional, and bittersweet event. There’s a ton of different reasons why business owners decide to take the leap – let’s talk about a few of them.

Personal Reasons

First and foremost, most business owners do part ways with their own venture purely due to personal reasons. Why? Cause as it’s usually said, running your own show is a 24/7 job and this can get exhausting pretty fast. Other times, it can be a purely be a shift in interest, or that they are hitting retirement. There are many reasons but here are the key ones:

1. Burned out or health problems

Nothing is more demanding than running your own business and this can sometimes either lead to owners burning out or experiencing health issues. In either case, running a business demands a lot of time and effort from its owner and the workload only keeps growing as the business grows in size. When the pressure becomes too much to bear, the owner usually decides to sell the company.

Building on this, owners can also sometimes fall ill, either by way of burnout or just bad luck. In such a case, some businesses are heavily reliant on the owner for its day-to-day operations and if the owner is suffering from health issues and physically not able to run the business. It may be the best option to sell the business in order to keep the business alive.

2. A shift in interests or priorities

We’re all human and we get bored easily, even when it comes to running a business. Especially with owners who may be serial entrepreneurs, once they’ve built a business and successfully got it to steady state, they may get bored and would like to pursue the next business idea in their head. We only have 24 hours a day and this means owners might sometimes fully cash out by selling their business to fund a new one or take a step back from direct ownership, still retaining equity but no longer involved in the day to day operations of the company.

Similarly, we all get old and the time comes when we need to hand over the keys to the kingdom. One of the most common reasons business owners sell their businesses is retirement. Although running a business has its own rewards, doing so for a long time can be exhausting! In such cases it’s normal for owners to feel that the benefits of selling the business far outweigh those of maintaining ownership.

Financial Reasons

methods of company valuationIf personally everything is going great. Sometimes, the reason for selling a business is purely financial, either to cash out and go live in the bahamas for a few years, or to capitalize on a inflated market value, or purely hedge your bets against an economic downturn. Whatever it is, here are the most common financial reasons we’ve seen for owners selling their business:

 

1. Liquidity

Although many business owners have a high net worth for their years of toil and growing their business. A considerable amount of this value is often tied up in the business as equity, and therefore, illiquid. Business owners may decide it’s time to reap some of the rewards and sell all or some their equity to convert it to cash.

In the cases where they only sell some of their equity, this is known as recapitalization. It’s a process where the exiting owner retains a minority equity stake — normally in the range of 10 to 40 percent. Usually, this is done by owners to reduce risk exposure by selling their equity to free up some cash but still retain the benefits of ownership. Generally in this case, you’ll see the exiting owner’s role slowly diminish, allowing them to almost act as advisors to the business but gain more freedom with their time to pursue other interests.

2. Macro Environment factors

Sometimes the industry of an owner’s business is suddenly gaining a lot of interest from outside investors (e.g. Artificial Intelligence right now), this vast pool of capital pushes up acquisition prices. Some owners decide to take advantage of the upswing in value and sell their businesses off at a higher than normal price.

economy businessesSometimes, the revenues of a business can decline for macro factors reasons far beyond the owner’s control — like an economic downturn or a high unemployment rate. Some business owners may choose to wait out such changes, but others can’t or don’t want to. In such scenarios, if the owner doesn’t want to wait till things get better, selling the business becomes the most viable option.

If business owners feel that their industry may go through some changes in the future that can affect their businesses negatively, some owners may be risk-averse and decide to sell sooner rather than wait an economic downturn that devalues their organization or impacts future profitability of the business.

Strategic Reasons

Sometimes, the reason for selling a company can be strategic or operational. An owner may decide to sell the company for the following strategic reasons:

Finance an expansion

If a company lacks the cash to buy new equipment, hire new employees, and increase advertising to broader its operational footprint, the owner may decide to sell some stake to an entity that can bring in the cash required for the expansion.

Raise capital for an acquisition

A company can benefit from being acquired by an entity that has the capital or debt capacity to consolidate the industry by acquiring a series of smaller competitors. In this scenario, the company improves its profitability by operating in an industry with fewer competitors. Moreover, it gets access to its former competitors’ resources like management talent, patents, etc.

Improve your competitive position in the market

Improve market share

A company being acquired by another one help it improve its market share by allowing it to leverage the larger acquiring company’s distribution and marketing channels, as well as the brand equity and goodwill.

Diversify customer base

Most small companies depend on a single or a relatively small number of customers to generate a large percentage of their revenue. This kind of customer concentration increases enterprise risk as losing even one or several key customers may cause the business to go bankrupt. In such cases a company can significantly lower the volatility of its cash flow by gaining access to the acquirers diversified customer base.

Diversify product and service offerings

A company may also look to be acquired so it can leverage the addition of the other company’s product and service offerings to its portfolio. The company can use the improved product and service portfolio to increase its customer base and revenue.

Import better management

man with business suitA company may seek acquisition by another company that has superior management practices. This strategic move can help to unlock value in the for the acquired business. The acquired business can benefit from the better, more professionally managed IT systems, equipment maintenance, accounting controls, executive leadership, etc.

Leadership succession

Sometimes business owners have to sell their businesses due to poor succession planning. If a business owner doesn’t have a worthy successor, selling the business allows it to continue operating effectively instead of closing its doors or risk declining business performance.

Conclusion

Ultimately, every decision to sell a business is based on various circumstances. Regardless of the reason to sell, it’s important for a business to be professionally appraised by an independent valuation firm so that it’s sold at a fair price, under fair terms, and in the owner’s best interest.

Unternehmensbewertung

Have You Considered These 3 Factors in a Company Valuation ?

There are many ways to arrive at a company valuation.

Popular methods of valuing a company (or business) include reviewing the health of the balance sheet, analysing an accounting measure such as EBITDA or calculating a value based on market share. While purely financial calculations are important, there are other considerations that influence a company valuation.

In this article, we describe three, sometimes overlooked but nevertheless important factors that contribute to a strong business valuation.

  • Long-term contracts with customers
  • Documented processes and procedures
  • Management independence from founder

Also interesting: the role of a dataroom within a company valuation.

Long-term Contracts Point to a Bright Future

Welche Dokumente duerfen mit einem DMS aufbewahrt werden?Businesses, are by their very nature, in a constant state of flux. With pressure from competitors, regulations, logistics, the state of the economy and much more – anything that provides an element of stability is very welcome.

Long-term contracts provide a company with a level of predictable income and security. The importance of winning long-term business cannot be underestimated in a business world defined by constant change.

A long-term contract to supply a product or a service is a strong indicator that company is trusted by their customers. Examples of long-term contracts include recurring consulting fees, ongoing maintenance services, regular repeat orders and rental of property or equipment.

Long-term contracts provide a strong basis for estimating future performance (an important part of a company’s valuation). Sales projections do not have to be based on estimates that could be wildly inaccurate, they are based on signed contractual documents.

With longer term contracts in place company management can plan more accurately. This can lead to greater efficiency and effectiveness of the company. Staff loyalty to the company can increase with greater job security arising from working on predictable, longer term contracts.

When valuing a company, analyse the duration of contracts. The longer the contracts, the greater the commitment of customers to the company and improved stability in earnings.

Process and Procedures – the Unsung Heroes of Business Success

Documented processes and procedures are central to the success of many companies. From fast food restaurants to commercial airlines and from private hospitals to logistics companies. The McDonalds restaurant chain is in many ways defined by the processes and procedures that underpin their business.

Organisations rely on well documented processes to give them a competitive edge in the marketplace. The efficiency they derive from their documented processes is an important part of their valuation.

So how do documented processes and procedures contribute to a company’s value?

  • The processes represent the intellectual property of the company and its understanding of how to run its business. A McDonalds restaurant can server a certain number of people every day based on the processes it uses to cook and serve food. This in turn gives incredibly accurate forecasting of costs and revenue for a given restaurant.
  • Documenting processes provides potential buyers with a clear idea of how the business works. Of course, there may be elements of process that must remain confidential for competitive reasons. However, documentation of process helps a purchaser better understand the business they are purchasing – and perhaps how they can improve efficiency.
  • Adoption of processes and procedures is a sign of a mature mindset within a business. The business has chosen to look for efficiency in their business and ensure their staff follow the procedures.
  • Use of documented processes and procedures means there is less reliance on specific people to do specific jobs. This is critical when people leave the company and so does their knowledge and experience. If this knowledge has been captured in the business processes, the business is at far less risk if a particular individual leaves the organisation.

When analysing a company, assess how much value is derived from their implementation of process and procedure. It may be more than you think.

A Strong and Independent Management

Aufbewahrungsfristen fuer Selbstständige, KleingewerbetreibendeHistory shows that the founder of a company may not be the best person to lead and manage their organisation. The skills and vision required to start a company are not the same as those needed for day-to-day management. Few founders turn out to be great managers.

So, when valuing a company, ensure you clearly understand the relationship between the founder and the management.

For those companies in an early stage of development, the founder may have almost total influence and control, especially if they are responsible for financing the organisation. This may be no bad thing in the early days as the charisma and force of personality of a founder may be critical to the company’s success.

However, an established company should have a management capable of running the business on its own without being reliant on the founder’s direct input. After all, if the founder were to sell the company, the management will no longer have the founder’s input. The management must be strong enough to run the company.

When assessing the quality of management of an organisation, question if they rely heavily on the founder for direction and vision. Ask the question “What is the company valuation if the founder is no longer there?”

In Summary

As discussed in this article, all three factors refer to the relative maturity of a company.

  • Long-term contracts highlight a company whose products and services meet a proven, well-established need and in such a way that customers are willing to commit to longer duration agreements.
  • Adherence to proven processes and procedures shows how a company values its own way of doing things and how that should be documented as part of its DNA.
  • The management team have the experience and independence to manage the company separate from the influence and direction of a founder.

Individually or together these three factors have a dramatic impact on a business valuation and should be considered as part of any valuation process.