Countless entrepreneurs and business owners’ dreams are to create a successful venture, sell it, and retire. However, selling a successful business is not something you should jump into when the first offer comes through. Just like any sale, selling your business is all about getting as much out of the sale as possible.
During this process, your business will be scrutinised in every way possible by a number of valuers, banks, and lending institutions. Ensuring that you get the highest return from the sale is about making sure your business is worth as much as possible.
So how do you increase the value of a business? Here we give you some tips that may help.
1) Reduce Customer Concentration
Business coaches will always tell you that in order to increase the value of a business, you need to ensure that no single customer exceeds 15 percent of your cashflow. When you rely on a low number of customers, the risks associated with your business increase.
Therefore, constantly strive to spread your cashflow concentration thinner, and hedge your bets on more than just one or two main clients.
If you are really unable to do so, at least make sure you protect your revenue by creating layers through signing contracts and officialising agreements you have in place with your customers.
2) SKU Rationalisation
Having an uncontrollable and unprofitable range of SKUs (Stock-Keeping Units) is a sure way to lowering your business’ overall profit margins. If you want to increase the value of your business, you need to lower you SKU count. You should reduce your high volume, low margin stock and consolidate your most profitable products.
By concentrating your efforts on a controllable number of goods, you will make your business more in-demand with potential buyers.
3) Review Marketing Activities
Before selling your business, review all of your marketing and advertising activities to ensure that you are getting the highest ROI on these investments and you are not making any glaring mistakes. If you do not have the processes in place to measure such activities, this is the best time to develop them.
When you have a clear picture of how your marketing is performing, consolidate your marketing investments, review, and optimise. By ensuring that you get the best bang for your buck – with a clearly identified niche, target person, and social media strategy – you will be easing the uncertainty of potential buyers as your message and targeting will be honed to the right people.
If aligning your marketing is your major problem at the moment, you may want to join the MarketingCLUB to get some direct advice on improving your strategies.
4) Reduce Your Costs
We live in a world post-financial crisis, which means investors are generally wary of where they spend their money. One of the first things they will look at when valuing a business, is its cost structure.
You need review all of your fixed and variable costs to ensure that your margins are as healthy as they can be. You should empower your managers and employees to explore and highlight where the company might be over-spending.
After conducting your reviews, enforce discipline in expenditure by outlining how much and on what each department should be spending moving forward. Create accountability within your workforce to ensure that no one loses sight of this critical aspect of your business’ profitability.
5) Efficiency Through Processes
As the business owner, buyers often see that the company’s most prized asset is you. Without you at the helm of the organisation, uncertainty could potentially spread through the business.
However, we have always said that a truly successful business is a profitable one that can run without you. If you want someone to feel safe in buying your business from you, you must ensure that your business has seamless and efficient processes in place so that you team can operate the business without your constant presence.
Take the time to review and develop your current processes, create new ones, and most importantly, document them. Leverage is a critical concept we teach in business coaching to successfully run a business. By ingraining these systems into your business structure, you give potential buyers no reason to doubt the company’s capabilities without you.
6) Employees Can Make Or Break Any Company
High employee turnover is one of the biggest worries that new owners have when buying a business. Without experienced employees, the stability of the company will be called into question, as years of know-how and specific skillsets will have just walked out the door.
To build your company’s value, you should have a high quality workforce that is loyal not just to you but to the company as well.
Besides ensuring that you hire the right type of people in the first place (you can download our very effective recruitment process here), you need to give them a reason to stay. Incentivise your employees with long-term rewards attached to the company’s success, such as equity ownership, or bonus plans tied to profits. Always know who your key employees are, and if you are looking to sell, ensure that you have clear transition foundations laid out so they will not blindly leave with you.
7) Tidy Up The Business
First impressions, even when buying a business, truly do matter. The first thing which potential buyers will notice will not be your business model or your processes, but your business’ physical structure.
Prior to any sale, make sure that your office, factory, warehouse, machinery, etc. are looking their very best. Just like any open house, make your business look spotless, and you will be starting off on the right foot.
This may seem like simple and superficial element. However, we are fully aware of how people make decisions based on emotion, not logic, and similarly, a buyer’s decision is heavily affected by impression, no matter how impressive the systems.
These are just a handful of tips for increasing the value of a business, especially if you intend to sell. Remember, as an entrepreneur, you have given a large chunk of your life to developing something great, make sure that when you let someone else take the wheel, you give your creation every chance it has to remain great. That is what buyers are looking for.