Many owners think about the value of their business the year they decide to sell. Buyers think about it from the first meeting. If a sale is anywhere on your horizon, the work you do in the years before it shapes what a buyer will pay and whether a deal closes at all. Here are ten ways to increase business value before selling.
For the bigger question of when and why to exit, read Exit Strategy: What Makes It Worth It?
1. Make yourself less necessary. If the key customers, the key decisions and the key relationships all run through you, a buyer is buying a job, not a company. Owner dependency is one of the first things buyers test. Start handing off decisions and relationships now.
2. Build a management team that stays. Buyers want leaders who will keep running the business after you leave. Hire them, develop them and give them real authority well before a sale.
3. Clean up the financials. Monthly closes on time, clear separation of personal and business expenses and statements a buyer can trust. Ask your CPA whether reviewed or audited statements make sense for your size and timeline.
4. Grow recurring revenue. Contracts, subscriptions and repeat customers are easier for a buyer to count on than one time projects. Look for ways to turn repeat work into agreements.
5. Reduce customer concentration. If one or two customers make up a large share of revenue, a buyer sees risk. Widen the base before you go to market.
6. Write down how the business works. Documented processes for sales, delivery, finance and hiring show a buyer the company can run without memory and heroics.
7. Tidy up the legal house. Signed contracts, clear ownership of intellectual property, current leases and agreements that can transfer to a new owner. Problems found in due diligence slow deals down or end them.
8. Know your margins and fix the weak ones. Understand which products, services and customers make money. Reprice or retire the ones that don’t.
9. Have a growth story you can prove. A pipeline, a plan and a track record of hitting your own forecasts give a buyer a reason to believe the next few years.
10. Get your own house in order. Decide what you want after the sale, talk to your tax and legal advisors early and pick your team of advisors before you need them. Owners who know what comes next tend to negotiate with a clearer head.
Start earlier than feels necessary
Most of this list takes years, not months. Buyers look at a history, not a snapshot. The good news is that every item on it also makes the business easier to own while you still own it. If you never sell, you still win.
Frequently asked questions
How far in advance should I prepare my business for sale? Many advisors suggest starting several years before a planned sale, since buyers look at a multi year history. Talk with your CPA and an M&A advisor about your own timeline.
What lowers the value of a business? Heavy dependence on the owner, a few customers making up much of the revenue, messy financials, undocumented processes and legal loose ends are common issues buyers flag.
Who should be on my exit planning team? Usually a CPA, an attorney who handles business sales, a wealth advisor and an M&A advisor or business broker. Peers who have sold a company can be just as valuable.
Thinking about an exit, even a few years out? I’d be glad to talk it through with you. If you are not ready to think about it yet, that’s fine. Schedule a Conversation