5 Strategies to Add Value to Your Business

Posted 12-11-2014 4:34 pm by

Thinking about selling your business?  There are actions you can take to prepare your business for sale that will help maximize the sale price of your business.

Today, I will share 5 strategies to add value to your business:

Strategy #1: Keep organized records.  Experienced business brokers know that receiving an offer on your business is only half the battle.  Often times, getting the accepted offer to closing is the more challenging part.  Most offers contain contingency clauses that allow the buyers to inspect the records of your business.  This is known as the due diligence process.  If the buyers do not waive their inspection contingency by a certain date, the offer becomes null and void.  This is the reason keeping organized records is vital to a successful sale so that buyers can verify and justify the price they are paying for your business.

Strategy #2: Watch your expenses.  A significant portion of the value of your business is derived from its cash flow, and making unnecessary purchases is an easy way to increase your operating expenses and decrease cash flow.  Buyers do not like to see deferred maintenance, but there is a difference between necessary and not-so-necessary expenses.  Buyers like to see proof that your business can be run efficiently and profitably.  Paying attention to your purchases will help improve not only your bottom line, but also the eventual sale price of your business.

Strategy #3: Prove the growth potential of your business.  Buyers want to know that expansion potential exists in your business, and that they can grow the business when they take over.  The more proof you can offer potential buyers that your business can be grown, the more valuable your business becomes.  For instance, you might not want to raise prices on all of your customers, but suppose you ran a pilot program where select customers received a 15% price increase with some added value you provide, and they continued to do business with you.  Knowing that a sample of your customers is willing to pay 15% more for a value-added service is powerful proof to the business buyers that they may be able to increase revenue once they take over. 

Strategy #4: Reduce dependency on key customers.  We all love to get a major account, but it is important to pay attention to your revenue per customer expressed as a percentage.  If 20% of your total revenue is coming from one key customer, potential business buyers might start to get a bit nervous, worrying about potentially losing 20% of their revenue overnight.  Ideally, business buyers like to see an eventually distributed customer concentration so that losing any one particular customer won’t cause significant harm.  If your business in fact depends on a few customers for a large percentage of its revenues, it is important to hire an experienced business broker to help position your business in the best possible light.

Strategy #5: Reduce dependency on the owner.  Many business owners are deeply passionate about what they do, and the customers come because they love the owner.  While this leads to many wonderful and satisfying exchanges between the customers and the owner, business buyers start to get nervous when the business is overly dependent on the owner to succeed.  One action you can take is to make your business more dependent on the systems you have set up than the charisma or personality of the owner.  If buyers feel that they have a chance to succeed once the current owner leaves, they will be more likely to pay a good price for your business. 

Aaron Muller has sold over 120 companies and facilitated over 40 SBA loans for his clients. Contact Aaron at (425) 766-3940 to inquire about selling your business.

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