1. Develop a Diversified Customer Base

   Buyers typically look for a customer base in which no single client accounts for more than 8-10% of total sales. A diversified customer base insulates your company from the loss of a major customer. For example, if your three top customers generate between 25-40% of your sales, a buyer will be concerned that one or more of them would leave upon learning that you sold your business. To a lesser extent this may also be a concern to inside buyers if the biggest customers are loyal to you, rather than to the company or other employees. Customer concentration then, is a significant risk factor to be avoided regardless of the exit path you choose. Know that righting this ship in this can take years, which is why it’s absolutely important that you address these issues early on

2. Make Your Financials Speak

   It’s not uncommon to find financial statements that offer only high-level information. However, if you want to attract blue-chip bidders, you have to zoom in closer on the numbers. For example, your statements should do more than state the amount of money you made. Perhaps more valuable is how you made the money. By focusing on the how, you can show investors the factors that are driving profit. You may also want to consider having an independent audit performed by a CPA. Even if selling your business isn’t on your radar, you should have annual financial reviews performed to spot underlying issues before they become intrusive obstacles. As far as financial reviews are concerned, nothing is more respected as a third-party audit. While these audits are expensive, they can make your company far more attractive to top-dollar bidders.

3. Assemble a Solid Management Team

   This is particularly important if the owner is transitioning out of the business. A business should not be dependent on the owner’s personality or customer relationships. To avoid this, assemble a management team that will have the power to make decisions and systematize the day-to-day operations. That way there are fewer hiccups as the new owner transitions in.

4. Keep Key Employees On Board

   The last thing a new owner wants is to experience employee turnover. Skilled employees bring stability to the business. By actively cultivating a high quality workforce, you can increase your company’s worth, especially if employees are committed to remaining with the company after you exit. Build long term incentives for key employees, such as equity ownership that vests over time or bonus plans tied to profits that motivate key employees to stay on after a business sale.

5. Create a Strategic Plan for Growth

   Buyers want to know that their investment is well positioned for future growth. A formal strategic plan that presents measurable goals and milestones for the coming years will give your business credibility as a growing concern with long-term potential.

6. Establish Recurring Revenue Agreements

   As we all know, sales are the engine that drives successful small businesses. In the years leading up to your exit, consider ways to consistently increase sales and revenue, with special attention on recurring revenue sources that generate gross income for a new owner right out of the gate. Building these recurring revenue streams and shoring up any pending customer or vendor contracts will give buyers comfort that they will have a consistent revenue flow while they get acclimated to the new business.

7. Evaluating Your Company

   You should understand that it’s difficult to create any product or service that can’t be quickly imitated and commoditized by your competition. Consider several strategies that enhance recurring revenue and address commoditization. Not all of these strategies will be appropriate for your company. Selecting the best strategies and incorporating them into your growth plan is critical for the ultimate success of your exit plan. Ask your team of outside advisors which strategies are the most appropriate for your company.

8. Boost Your Profits

   You should not expect to receive high offers if your business is only breaking even. You also don’t want to be taking too much money out of the business. Good retained earnings on your balance sheet (i.e., undistributed net income) indicates to buyers that the business has been healthy and profitable. It’s common sense that buyers are willing to pay more for companies that can quickly generate a profit. Showing buyers that you are profitable is certainly a good first step but if you can show them that your profits are still increasing, that will certainly drive up the price they are willing to pay. Look for new ways to cut costs or create efficiencies that will give your business that extra profit boost leading up to a sale.

9. Have a Solid and Improving Cash Flow

   Ultimately, buyers look for companies whose cash flow is increasing year over year. For example, consider two businesses, each experiencing $6 million of cash flow over the last three years. One company’s cash flow was $1 million three years ago, $2 million two years ago and $3 million last year. The second company had $2 million of cash flow in each of the same three years. Which company is worth more to buyers? Of course it’s the company with the increasing cash flow. Its track record of steadily increasing revenue can be convincingly projected into future, post-sale growth. Review the past three years’ annual cash flows of your business. Are they trending upward?

10. Differentiate Your Product or Services from the Competition

    In many ways, selling your company is a marketing challenge of its own. That’s why it is important to showcase to potential buyers whatever differentiates your product or service from the competition. In the business-for-sale marketplace, companies with differentiated products or services can command a premium. You will need to demonstrate that your company is uniquely positioned to dominate a segment of the market. To do this, be sure to develop and promote any patents, intellectual property or other unique features of your products or services that give you an advantage over your competitors. Also, ask some of your long-time clients for testimonials explaining why they do business with you and what keeps them coming back

11. Develop Seamless Processes and Routines

    Sophisticated buyers understand that in many businesses the most valuable asset is the seller. As the seller, your job is to convince buyers that they can continue to successfully operate the business even after you leave the scene. The way to do that is by developing seamless processes and routines that enable the company to function effectively without your direct involvement. Make sure these processes are also documented so the new owner essentially has a guide to running the business successfully.

12. Continue to Invest and Improve in Your Business

    One of the biggest mistakes business owners make is to take their foot off the accelerator after deciding to exit. The moment you stop investing in new equipment, maintenance and process improvements is the moment you start reducing the future value of your company.

13. Tidy Up Your Business

    Remember that a buyer’s first impression of your business may be its physical structure. Prior to listing your business, make sure your facility is looking its best. If you’ve been considering any renovations, new furniture purchases or even just a fresh coat of paint, make sure it is completed before potential buyers step foot in the door. Besides this physical aspect, make sure to tighten up loose ends before you list your business. These may include such things as finalizing leases, contracts and other agreements. This can significantly increase your business value, making it more likely that you receive the price you desire.

14. Seek Professional Advice from Your Key Advisors

    Selling your business is one of the most important moments in your life as an entrepreneur. Professional advice will help ensure you get it right. You should begin well in advance working with an experienced outside team of advisors (e.g., attorneys, accountants, etc.) who can help you prepare your business for sale, including having an expert valuation conducted.

CONCLUSION:
These tips will help you build a stronger, more efficient and valuable company. They can also help you grow sales, improve your profit margins, and stand out from the competition. When it comes time to sell, your business will be more attractive to buyers and command a higher price.

[ CLICK HERE ] for a synopsis of recent business sales Mark has assisted his clients with.

Call to schedule a One Hour FREE Consultation to address any questions you have about buying or selling a business: (949) 453-7979.