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 the bottom line, as each additional dollar generated in earnings can yield $3-$7 or more in higher selling price.
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 and it could impact the amount of cash at close.
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 the seller in control and will comfort a buyer’s anxiety.
Revenues derived from several large customers impair a buyer’s confidence in the future of the 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.
Are employees cross-trained in multiple areas of the business? This minimizes the negative effects of employee defections before and after the sale of a business.
Conduct a pre-due diligence of your organization. Letters of Intent (LOIs) often fall apart because of unknown items that come up in due diligence or because the due diligence process drags out. 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.