You never know when someone might want to buy your business. It happens all of the time. There are many former executives and managers as well as private equity groups looking to acquire businesses in order to get a good return on their money. Increasing your business value can be extremely beneficial in these circumstances.
But the reality is that every owner can benefit by increasing their business value. This includes owners who plan to transition their businesses to insiders.
Whatever the case, the business needs to have ever-increasing cash flow in order to support a departing owner and provide a return on investment for those who will take over the business operation.
Here are 6 tips for increasing business value:
- Reduce owner dependence
The business must be able to run without the daily involvement of the owner. Owners need to hire and retain key managers who are smart and can garner the respect of the employees.
- Increase revenue
Owners must demonstrate that the business has growth potential or it will not be attractive to buyers or successors. Having a written plan that outlines how the business will gain new customers or tackle new markets–and then executing the plan—will go a long way toward proving that the business can grow with the right amount of capital and effort.
- Show true profits
Many owners suppress profits to avoid paying taxes, but this decreases value. They often manipulate inventory value and/or run personal expenses through the business. But owners will need to “come clean” and show profits in order to increase value.
- Reviewed financials
CPAs provide varying levels of assurance on business financials. We recommend that owners obtain an annual review to bolster the credibility of their financials which are always scrutinized closely by buyers.
- Professionalize the business
Run it like you mean business! Develop written policies and procedures and follow them. Have job descriptions, employee goals and conduct regular employee performance reviews that determine pay increases. Don’t grant exceptions or provide special treatment to family members or others.
- Put on a fresh coat of paint
Literally and figuratively. Giving the business a facelift demonstrates that you care about the business. Clean, well-lit facilities will inspire respect from employees as well as outsiders. First impressions count when business value is determined.
Owners should implement these strategies as soon as possible, especially those planning to transition business ownership, whether to outsiders or insiders. Future owners will want to see a track record of good performance before they will be comfortable investing in the business.
Remember, you never know when that buyer will come knocking. Click here to learn more.