How to Increase the Value of Your Business BEFORE You Sell
If your business is at this stage, you need to ask yourself if you can keep it running and increase profits, ensuring a better sale price in the future. Perhaps a new competitive threat means you will be unlikely to recover. If this is the case, you need to objectively assess the likelihood of restoring the business to its previous heights — and valuation — versus the risk of things deteriorating further still.
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Do you stick or twist? The trick here is not to be lulled into false security. The selling process may take a while. A growth business will always sell quicker and at a better price because astute investors are ready to take advantage of future market success. However, few business owners want to sell when business is booming. They find themselves enjoying the fruit of their hard labour and are keen for it to continue. Yet as buyers will pay more for rising profits, a period of growth is always a time to check in with yourself on why you love owning and running a business.
As a business grows, entrepreneurial challenges that were once exciting motivators are often replaced by more administrative or human resource-related challenges. This is a tough one to face, but business ownership and leadership also requires humility. Is it time to sell your business to someone who can take it to the next level?
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Think of Blockbuster videos, unable to be nimble enough to fight off the challenge of Netflix and Stan. Honesty and humility are important here: you may want to be a multi-million-dollar acquisition, but do you have the skills to get to that level? A million-dollar offer may be worth considering. When it comes to selling a business, there are pros and cons to do-it-yourself DIY versus using a business broker. Primarily, choosing to DIY means you will, by necessity, take your eyes off running the business. Not all business brokers are created equal.
Ask for a detailed plan that a broker will action to advertise the business, solicit buyers and achieve visibility. If their strategy is simply to write an online listing, then there is only limited added value and you might consider doing it yourself. Request copies of profiles they have developed for other clients. Expect detailed pros and cons of the business profiled. If an owner will give you a positive review of a broker regardless of whether the business was sold or not, it speaks volumes about the broker's ability and ethics.
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Instead, expect to be asked lots of questions about the business you are selling. You want a broker whose primary agenda is to learn about your business, because then he or she will be best equipped to sell it. Asking you good questions in an effort to get to know the ins and outs of your business is a great sign, as is a willingness to invest time with you in follow-up meetings. Using a broker can make a deal flow better and ease communication — especially if you need to take a firm stance, because it means you have someone else in your corner to deliver any bad news.
To get any buyer comfortable enough to make an offer, they need all their questions answered and will seek assurances that you will be there for an effective transition period. The more confidence and trust you can instil in the buyer, the greater your chances of making the sale. Preparation is everything when it comes to selling your business.
This guide explains how to assess your business, document operations, consolidate paperwork and make your premises presentable. When it comes to selling your business, preparation is everything. In this guide, we explain how to do this with minimal pain. The task can seem daunting, but there are a few fairly simple things to consider as you head towards selling your business.
This is slightly different to valuing your business and it requires looking at your business carefully to analyse how it works. Sit down for a few hours and pretend you are one of your customers. Then use that perspective alongside your insider knowledge. This method provides a reasonably well-rounded look at your business and forces you to confront its weaknesses and vulnerabilities as well as its strengths and potential.
Create an operations manual — this will ensure that everything you and your team have in their heads is documented. Keeping paperwork accessible is not only required to prove that you have a lucrative business that is worth buying; it will also work in your favour to keep the process as smooth as possible throughout. The best way to prepare your business for sale? Just take that extra time to look at your business how a customer or a buyer would. Pay attention to the peeling paint, the squeaky door or the broken tap in the break room.
These might seem insignificant to the running of the business, but they could be the deciding factor when it comes to a new owner buying your business at the asking price.
At the end of the day, your prospective buyers want to be put at ease. Having well documented financials, a succession plan, looked-after premises and a thorough assessment of your business could get a buyer over the line and result in your business selling for the price you wanted. Many business owners are under the false impression that valuing a business is only important when it comes to selling it.
10 Effective Ways to Raise Business Value Before Selling
Valuation is crucial when it comes to selling, sure, but it can also be helpful to have a fair idea of its valuation throughout your business journey, for any number of reasons — the most common being:. Separate from personal information, having a thorough record of your employees means that potential buyers are aware of the job descriptions involved as well as special skills, pay rates and even staff morale. Information regarding your commercial contracts, lease arrangements, licences, permits and registrations can impact the value too.
You must provide proof that your business complies with all relevant environmental and health and safety laws and disclose any current or pending legal proceedings. Profit margins, annual turnovers, asset market values and an assessment of tangible assets all come under the financial information umbrella. All this can help valuers know a little more about the liabilities of your business as well as where you are thriving. Take an objective look at the industry and think about short-term and long-term outlooks and how the industry is growing or shrinking.
Consider your competitors and the competitive edge you have in the market. Spending time assessing this type of market information is important; it can also make you aware of the prices other businesses in your market are being advertised for.
Selling a business
Put simply, business valuation is a process and set of procedures used to determine what a business is worth. While this sounds easy enough, getting a business valuation done right takes preparation and thought. The value of a business can be calculated through considering the pricing guidelines of the industry it belongs to.
Each industry is different, so research your industry, discover industry rules and formulas and arrive at a clear understanding of where your business lies within the system. The Australian Bureau of Statistics has plenty of statistical data, grouped by industry, that gives you a good idea of what factors might play a part in your sector. This is where you take a look at businesses similar to the business you are trying to value.
By reviewing comparable businesses you can assess what a given business is potentially worth. Of course, this method is not always accurate because every business is different, with different customers, locations, equipment and tools.
Take both tangible and intangible assets into consideration, as well as appreciation rates, and you will get a good understanding of how much a business is worth. The figures in your accounts are a good starting point, but remember that financial advisors are obliged to be prudent: they must use the minimum the assets could be sold for.
Tangible assets can be things like tools, equipment and property, while intangible assets are things like goodwill, brand and intellectual property. This valuation method is based on how much money the business owner would receive if all tangible assets were sold on the open market immediately. In my opinion, almost every time you sell a business, the exit strategy should include multiple bidders.
An active bidding process ensures predictability, negotiating strength, price maximization and good governance.
Below are 10 things to do NOW to increase your company’s strategic value
Most importantly, it dramatically increases the probability of a transaction actually closing. It still all comes down to people. No matter how big the business for sale, these individuals, like all other investors, have psychological characteristics that make them susceptible to a well designed and executed sales strategy. About three years after the first investment, three of the nine had a liquidity event — one went public and two were acquired. This was not a happy accident; it was a necessary component of the portfolio strategy.
In that fund, I both selected companies I thought could execute early exits and worked actively with the boards and CEOs to sell the businesses. The Parasun case study is posted here.
Fortunately, the same dynamic occurs regularly in the public company markets.