How to Improve Business Value
A successful small business sale begins with a solid grasp of business valuation. The valuation can make or break a business sale because for many sellers, attaching a dollar value to their company is a touchy subject - especially if they have spent years building it from scratch to a profitable enterprise.
A valuation process is a skill that is not derived from a simple formula. It involves subjective judgment coupled with acceptable market valuation methodologies and should be undertaken by experienced advisors.
Remember - the actual value of your business is the amount someone is willing to pay for it in the business-for-sale marketplace. Personal feelings about your company's worth have no relation to the value determined using sound valuation methodology, accurate documentation and other factors that could potentially influence value.
Business valuation experts often find that sellers are surprised to discover that the valuation process yields a lower-than-expected asking price for their business. The good news is that if you are not happy with your business' estimated value, there are steps you can take to increase the business potential value before putting it on the market. It is important to start immediately however, as you need to start planning usually years in advance to make the kinds of changes that substantially improves the value of your company.
From a buyer's perspective, proven profitability and future earnings potential are the most attractive qualities in a potential business acquisition. By documenting a multi-year record of accomplishment of profits and positive cash flow, you can drive up the value of your company-substantially! Get your business advisor involved to help you plan for profit improvement. The investment in professional advice will pay big dividends on the eventual sale price.
It is also important to strategically position your business for future earnings, identifying advantages your business either has or will have in the general marketplace. What is your point of difference from the competition? Also, identify and fix any areas of weakness. Does your business have a key person or over reliance on certain customers or industries?
Another strategy for improving business value is basic organisation. Carefully maintained financial records, documented employee policies, sales scripts, manufacturing documentation, the how to manual, think "McDonalds" a tidy workplace and/or workshop - it all counts when it comes to the amount buyers are willing to pay for your business.
Simplicity has value, and the easier it is for buyers to understand your business and see themselves in the driver's seat, the more likely it is that your business will sell for its full value.