Maximizing Business Value
Selling your business is a chance to be repaid for your hard work.
You have done a great job establishing and building your business and now it is time to reap the rewards! There are some key things to examine, well before you start the process of selling your business, that could make a difference of thousands of dollars to your eventual sale price.
*Quick Tip:
Focusing on selling your business two to five years before commencing the sales process will almost certainly result in a much larger reward. The more ready your business is to be sold, and the more attractive (less risky) it is to a buyer, the better the sale price you will receive. The more the buyer thinks he or she can earn in the future, the more attractive and appealing the business becomes, and the more it is worth.
Criteria for Improved Business Value
Some, or all, of the following criteria may significantly improve the value of your business. Your business:
- is in a growth market
- has a product that is selling extremely well in one region/location/market and can be easily adapted to a wider market
- has invested in, or owns, the technology or Intellectual Property
- has patented the processes
- is on the verge of signing a new contract
- has developed a unique concept
- is the market leader
- is in impressive premises in an ideal location or
- has a great brand name or other key factors.
Minimizing Risk
The less risk attached to future profits, the higher your business is valued. You can minimize the perceived risk of buying the business by demonstrating solid past financial results, having competent managers, and having a business that is not reliant on the business owner.
Two important factors to remember when considering the sale of your business:
1. Understand When to Sell: The "Getting Ready" Process
You need to explore issues such as whether you have the right information together for the potential buyer. Does your business look like a low risk investment? Do you understand the key criteria in selling your business, so you can present your business in the best light? Is it likely that if you waited you could improve the appeal of your business and therefore sell it for a higher return?
The following concepts are essential to understand:
VALUE: The value of a business will generally be based on how much income it can earn and how much risk the potential purchaser will associate with earning this income.
RISK: The higher the risk to the potential buyer, the lower the value of your business. “Risk” is a measure of the level of certainty that a buyer can continue to maintain the income of your business. If you have made a loss for the last two years, your business will be high risk and relatively unattractive. A buyer will see it as an unreliable investment and will look for other companies that have made a profit.
ATTRACTIVENESS: The lower the risk of the business to the potential purchaser, the higher the attractiveness of your business. Most importantly, the more attractive your business, the higher the return you will receive.
READINESS: Even if your business is an attractive low risk investment for a potential purchaser, you can maximize the selling price by making sure that you have all the documentation, forms, systems, and processes in place prior to negotiation.
IMPLEMENTATION: Establish and implement a plan to prepare your business for sale.
2. Understand How to Sell: The Price and Strategy Process
This is essentially a marketing exercise. You need to be clear on the price, strategy, and processes that you will use to advertise and sell your business.
Do not take shortcuts because there is too much at stake.
