For a business owner interested in selling their small or mid-sized business, maximizing the selling price of the business is a key concern.
A first step in the process to sell your business is to understand the estimated value for your company, based on factors including the firm’s historical cash flow, balance sheet assets, trends, sales of similar businesses, and other tangible, measurable items.
However, the real price a buyer will pay for the business is usually higher or lower than the initial valuation, varying due to the buyer’s perception of the strengths or weaknesses of the intangible assets of the company, such as management talent, business processes, and much more. To help ensure a buyer will pay a premium for your business, consider how to best maximize your company’s intangible assets:
Develop key employees
Buyers generally aren’t interested in paying a premium if your business primarily relies on you for its success, or if you control most of the important client relationships. Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale.
Be sure that job descriptions, operation processes, and strategic plans are documented. All documents such as sales and expense reports, internal P&L statements and tax returns should be consistent and well organized. Documented records and plans provide a buyer with comfort that he or she will be able to replicate your successful growth, and can also help your buyer obtain financing if necessary.
Review your balance sheet assets
Take a look at your balance sheet and ensure it is accurate. Sell or write off unsaleable inventory. A buyer won’t want to purchase unused twenty-year-old widgets, nor should he or she see them on your balance sheet or in your warehouse. Be sure the amount of inventory on your balance sheet matches your physical inventory. Review any opportunities to turn overdue accounts receivables into cash.
Look for ways to improve profitability
Buyers want to see positive trends, so compare year-to-year results for each revenue and expense line item on your income statement. You may realize that revenues have dipped slightly in a particular segment, or that costs have crept up in a few areas. Address any issues now. For example, in an environment of rapidly raising prices, you may need to switch to less expensive vendors or suppliers, or consider passing cost increases onto your customers in the form of price increases.
Look for barriers to entry
What does or could your company offer that would be difficult, expensive, or time consuming for a new entrant to your industry to replicate? For example, one of our distribution clients has developed a state-of-the-art online ordering system. Buyers will pay a premium for a niche that has barriers to competitive entry.
Remodel, clean, and organize
When a home-owner puts their home on the market, they spruce things up, paint, and make sure everything is clean and organized. Consider doing the same thing. A well-maintained facility or office conveys a feeling of quality and efficiency.
Feel free to call us with any questions on how to best develop a plan to maximize these and other important intangible assets, to help obtain a premium selling price for your business.
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