According to StoneBridge Business Partners in Rochester, New York, business owners often pass their businesses on to their adult children, using an estate-planning option or gifting program. Other owners believe that the sale of their business represents a prudent way to liquidate their holdings. Yet when it’s time to sell their business, they have only a vague idea of what the business value is worth. Complicating matters, many business owners think their businesses are worth far more than they’ll actually fetch on the open market. Additionally, many owners have failed to properly prepare their businesses to maximize a sale price.
Conduct a Business Valuation
A smart first step, according to StoneBridge’s management, is to hire an impartial third party to do a business valuation. This valuation will reveal strengths and weaknesses of the business, which will help position the company strategically when it’s time to sell. Buyers will need to confirm everything you tell them about your business. That means reviewing extensive financial, legal and human resource records.
Increase the Value of Your Business
The business evaluation is just the first step. Depending on the particulars of a business, small companies can take advantage of dozens of strategies to boost their value. Following are but a few of these strategies from the number crunchers at the small-business consulting firm Allied Business Group (ABG) in Overland Park, Kansas:
- Concentrate on the bottom line. When potential buyers evaluate your business’s worth, they’re concentrating on earnings, specifically cash flow. Revenues generated from products or services that are not profitable will hurt the value of the business because they reduce profit margins and increase overhead. Ultimately, the value of a business is derived from the cash flow and the potential to generate future cash flow. Most important, the quality of cash flow is evaluated scrupulously during the sale process. Investors and bankers examine the consistency of cash flows.
- Establish a niche that allows you to play on strengths. Companies that build strong brands to serve a market niche are usually more valuable than their counterparts that attempt to serve everyone. Evaluate your competitive advantage, concentrate on what can be improved, and play on your strengths. This helps forge a brand that will fuel financial performance.
- Get your house in order. ABG’s analysts say that you can’t start planning soon enough for the sale of your business. Typically, a sale takes 6–12 months to complete, and ABG advises planning for at least two years before kicking off the process.
We’ve barely scratched the surface. Many other factors need to be considered when increasing the value of your business. Leave nothing to chance. Contact us today, and let our experienced professionals help you realize maximum value from your business.