In life, a “glass half full” positive outlook works well, but it isn’t necessarily the best way to do business; a hopeful attitude with little exit planning will take you only so far. You need to employ proven strategies to get the full value of all the hard work you’ve put into your business over the years, but sadly many business owners fail to do anything to maximize their company’s sale price.
Research shows that only
- 21 percent of sellers included a strategic analysis and value-enhancement plan in their sale information,
- 12 percent provided a growth budget, and
- 24 percent presented a stated growth target or goal.
The following six steps can help you optimize your offering for buyers when you decide it’s time to retire or move on to your next challenge.
1. Obtain a Business Valuation
Few people know how to value their own business correctly. It’s not a figure you can determine based on the amount of time or money you’ve put into it or even the value of your assets and projected revenue. Many owners find it challenging to understand the many different components of a business valuation, and the gap between perceived and actual value can be vast.
Getting a professional valuation from a qualified person or company allows you to address any issues that would hamper your sale and achieve a greater profit in the process.
2. Create Written Goals and Objectives
You can’t go anywhere without a roadmap, and companies are the same. Companies with a highly focused strategic business plan will have clear written goals and objectives that can maximize a business’s value in several ways.
Organizations with a strong business plan in place before a sale typically show evidence of successful operations and good alignment between company goals and actions. For example, a long-term plan to increase market share can improve a firm’s overall attractiveness to buyers.
With well-chosen goals and objectives already being followed, buyers don’t have to worry about urgently fighting fires or restructuring operations when they take over. They can be sure a purchased business will keep operating profitably against the current business plan for a while before making any major changes.
3. Recast Your Financials
Recasting means changing a company’s financials to provide a different view of the business. There’s nothing illegal about it, and it helps interested parties understand the company’s potential without anomalies and one-off situations muddying the water. Some of the changes that occur during recasting include:
- Removing records of income or expenditure that only happened once and probably won’t happen again.
- Adjusting expenses such as your rent to reflect market rates. This is helpful if you’re paying low rent because you’re operating out of a building owned by a family member. The buyer may not have the same opportunity, so their rent could be higher.
- Deleting your owner compensation or adjusting it to match average market rates. For instance, a future owner might not draw the same amount as you but will have to pay someone market rates if they aren’t as hands-on as you.
Recasting financials lets you show buyers the real profit you make from your company and provide a “normalized” look at the business’s performance.
4. Get a Business Risk Assessment
A business risk assessment identifies threats facing your company and their potential outcomes. Some of the threats could be an inadequate disaster recovery plan, insufficient insurance for all the company’s assets, or cybersecurity risks due to systems that are not fully protected.
Any potential buyer will require evidence of compliance in all these areas, so you must get a full risk assessment before you decide to sell.
This enables you to address the risks and take action that will maximize the value of the business before selling. Since the U.S. Small Business Administration estimates a quarter of small businesses never recover after a disaster, this assessment is especially relevant for small- and medium-sized businesses.
5. Secure a Market Attractiveness Assessment
Industry and company growth prospects are critical factors for prospective business buyers. Whether a company operates effectively or not, long-term profit depends on the industry’s potential return on investment. For example, the average ROI for a business in the airline industry is notably lower than for pharmaceutical enterprises.
These discrepancies are mostly due to issues such as the competitive landscape, entry barriers, product differentiation, capital expenditures required, and operational overheads, among other factors.
A business broker can evaluate the attractiveness and potential for growth in your industry and help you establish possible future ROI.
6. Source a Business Readiness Assessment
Nobody wants to invest in buying a business only to have employees, customers, and suppliers walk away and leave them high and dry. Without an assessment determining your company’s readiness for change, anyone buying the company could feel threatened by these costly scenarios.
It’s best to get your assessment done long before you list your business for sale so you can address any issues and manage the backlash.
A change readiness assessment tests the awareness, acceptance, and understanding of all your stakeholders. The sale is more likely to succeed if affected people and groups are ready and willing to adopt the changes, which will help you get maximum value during the sale.
Owners Don’t Know What They Don’t Know
Studies show successful business sale rates in the U.S. are between 20 percent and 30 percent, which is significantly lower than what they should be from economic and social standpoints.
The primary reason is that business owners misunderstand or underestimate what a successful business sale requires. Since most owners don’t recognize their own ignorance on these strategies, they frequently go unaddressed.
Business owners do many things right, but for most, exiting and selling a business is a once-in-a-lifetime event they have never done before.
The consequences of their lack of knowledge can severely affect the SMB market, but it can be resolved with a small investment and some effort.
Be One of the 20 - 30 percent that Sells Their Business for Top Dollar
Where do you get help before you arrive at the point when you want or need to sell only to learn your lifetime of work is not worth anywhere near what you require? Sadly, it happens to too many business owners, specifically those who fail to improve their business operations way before they sell.
No matter where you are on the wanting-to-sell timeline, you can improve your business’s attractiveness and desirability by acting now.
We specialize in strategic planning, leadership development, manager development, and employee training that result in maximized operational effectiveness and efficiency, higher profitability, and maximum salability when you are ready to sell.
Shouldn’t we be talking?