When you are considering selling your business, it is important to look at the way that others will view your business to determine its value. A typical business has two values, a true market value and an academic value. An academic value is one that is based on the hard assets, industry averages and multiples, and cash flow. The market value takes these items into consideration too, but also considers what buyers are actually willing to pay. For a small or mid-sized business, hard assets such as vehicles, equipment, buildings, land, and inventory may be limited, and in fact, there may be no hard assets at all. Instead, their value is based on things such as their employees, customer list, business processes, location, and other business relationships.
To maximize this type of value, you need to capitalize on assets that are intangible with the following tips:
Develop key employees: If a business relies on you alone for success, a buyer is going to be less interested in paying a premium for the business when you are no longer a part of it. Remember to delegate important responsibilities to key employees and involve them in the decision-making processes. Showing that your business can be run by your well-trained employees will pay off when it is time to sell.
Document everything you do: Be sure that your operation procedures, job descriptions, and strategic plans are documented. Records and plans give your buyer comfort that they will be able to continue your success and it will help them obtain financing. Also be certain to keep records such as sales and expense reports, profit and loss statements, and tax records well-organized.
Build relationships: Customer awareness, name recognition, and your reputation are part of the value of your business. Even if you do not have a lot of hard assets, your relationships are the key to your value. Consider diversifying customer and supplier accounts.
Improve cash flow: A buyer will want to see cash flow. Be sure you are putting all income to the bottom line.
Review your assets: Dispose of or sell any assets that are unproductive or unsellable. Remove or buy off assets that are mainly for your personal use.
Find your niche: You do not need to be everything to everyone. Buyers will pay you premium prices for a niche that has barriers for competitors.
Clean, organize, and remodel: What is the first thing that everyone does when they go to sell their home? They spruce it up and put everything in its designated place. However, in business, that rarely happens. A business that has been well-maintained, even those that are in a leased space, will get a better price. Do a thorough cleaning and organize everything to give an appearance of efficiency and quality.
Whether you have hard or intangible assets, getting things in order well in advance of selling your business will help you reap plenty of rewards. When it comes time to put your business on the market, consider hiring experts who will help you make the most of your sale such as an accountant and an attorney.
Contact an Experienced Business Planning Attorney Today
Whether you are buying or selling your business, the attorneys at Verhagen Bennett LLP can help. We have years of experience helping California businesses succeed. Contact us today to schedule a consultation.
© 2019 Verhagen Bennett LLP — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.