Focusing on growing and enhancing your business not only increases your earnings, it also drives the value of your business. Lowering the risk of events that have a negative impact on the business from employees, customers and competitors creates a more stable and valuable business to sell. Here’s a sample of the things that can positively impact a buyer’s interest in a business and how much they are willing to pay. For a more detailed explanation, please contact our Kansas City office.
- Cash Flow/Earnings:
Buyers typically base their offers on the earnings or cash flow of the business. Extraordinary and excessive expenses, owner perks and benefits can negatively impact value. Focus on increasing your bottom line as each additional dollar generated in earnings can yield $3-$7 in higher selling price.
- Management Team & Owner Dependency:
Are key customer and vendor relationships dependent on the owner? Buyers want to see transferable relationships that won’t be overly vulnerable to competitors once the owner departs. Develop a strong management team to back up the owner. Otherwise, the owner will need to stay on board working with the buyer for an extended period of time and the price may be paid out over time after you sell.
- Non-Compete & Confidentiality Agreements:
Key employees are a threat to become competitors. Having employees sign non-compete and confidentiality agreements before they find out the business is being sold keeps you in control and will comfort a buyer’s anxiety.
- Customer Base:
Revenues derived from several large customers impairs a buyer’s confidence in the future of your company. Implement a marketing plan that will lead to the creation of new markets or customers. Ideally, no customer should account for more than 20 percent of total revenues.
- Employee Dependency:
Are employees cross-trained in multiple areas of the business? This minimizes the negative effects of employee defections before and after you sell the business.
- Pre-Due Diligence:
Conduct a pre-due diligence of your organization. Letters of Intent (LOI) often fall apart because of unknown items that come up in due diligence or because the due diligence process drags out in an attempt to address certain issues that would have been resolved if known earlier. Identifying hidden skeletons prior to selling allows owners to resolve issues on their time frame. Having a pre-due diligence package assembled prior to selling comforts and impresses buyers, plus it speeds the selling process towards closing after an LOI is executed.