If you are planning to sell your business or you are considering putting your business on the market, you want to present your enterprise as a profitable, money-making venture. The valuation process will determine how much your business is worth based on a variety of factors—from appraising your physical assets to projecting future cash flows. Therefore, getting a higher valuation will allow you to obtain a higher price for your sale.
You can take affirmative steps to help increase the value of your business by addressing issues that someone who is valuing your company will consider.
- Increase profits.
If a potential buyer or investor is considering your business as an investment opportunity, your bottom line is going to be extremely important. Take a hard look at your expenses and income. Where can you cut costs to increase your profits? Are there ways that you can become more efficient that will make your bottom line look more attractive? Giving your business an extra boost in the months leading up to its sale can be extremely beneficial.
- Create regular revenue streams.
Buyers like the possibility of having regular customers without much (if any) added work. For example, creating sales contracts with clients that will last several years can be very appealing to buyers. Regular clients that have consistent needs and produce consistent revenue make your business look like a “no-brainer” investment. However, you should keep in mind that having just a few major clients can be risky—if that client does not purchase as planned, the business may flounder. Diversified, but regular, customers are ideal.
- Focus on cash flow.
Cash flow numbers are extremely important to potential buyers. Some buyers have a hard time recognizing the value of your company’s key assets. Instead, they only look at the historical cash flow and projected cash flow. As such, it may not be a good idea to make any substantial asset purchases right before the sale. Simply showing cash flow on your books in the months leading up to the deal, instead of large expenses, can attract buyers.
- Consider scalability.
A business that is scalable sees an increase in revenue without an increase in expenses. That is, profit margins are higher when revenue increases. Consider which assets allow your company to grow profits without increasing costs and highlight those to potential buyers. For example, if you have a specific software license that you can use no matter how many clients you have, that will be appealing to someone looking to grow your company after purchase.
Getting your business ready for sale can be a tricky process. However, the experienced team at The Matus Law Group can help you ensure that your business looks as best as it can before you put it on the market. Planning is essential to get the most value out of your business. Call us today at (732) 281-0060 for more information.