If you hope to sell your business someday – even far into the future – the time to think about increasing its value is now, not when you decide to put it up for sale. CPAs and business brokers say that too many business owners are shocked to find out the business they’ve been building for years isn’t worth nearly as much as they thought. But there are things that you can do along the way to boost the value of your business, and make it more attractive to potential buyers.
Here are ways to make your business more valuable:
• Don’t let it be just you. Many small businesses suffer from the all-controlling owner who not only knows how to do everything but also insists on being part of everything. But overreliance on a single individual – you or anyone else – can be a red flag to potential buyers if the shoes they have to fill appear too big, or it appears that the business model itself can’t stand on its own.
• Avoid excessive customer concentration. Buyers dislike seeing a small number of key customers accounting for the bulk of sales.
• Keep financial statements and tax returns in line. It’s vital to have good accounting systems and financial safeguards in place, and to keep accurate records and statements. Any buyers will want to examine these records as part of a due-diligence process. Also try to avoid adjustments or add-backs, which don’t look good.
• Don’t be too dependent on a key employee. It’s not unusual for a small company to encounter problems if a top salesperson leaves and takes along some key accounts.
• Grow your revenue. This one’s rather obvious, but true. A business doing $500,000 in sales won’t sell for the same multiple of profits as a similar business doing $5 million. There are simply more risk factors associated with a smaller business. A minor hiccup to a larger operation can be a major disruption to a smaller one.