Every business owner wants to get the most they can for their business if they decide to sell it, so it’s disappointing when the sales price is lower than they expected. It can be hard for them to understand that the value of the business isn’t directly related to the hard work they’ve put in. The bottom line is that a business is only worth what a buyer is willing to pay and the main concern of most buyers is how much money they can make if they buy the business which means cash flow is a critical factor. That’s why it’s important to understand what to do to improve that number.
1. Increase profits
The person or company buying your business will probably need a loan for the purchase and will be using the business’ profits to make their monthly payments. That’s one of the reasons cash flow and profitability are so important to the value of your business. You might want to hire an objective professional to review your books and operations for inefficiencies.
2. Grow sales
If you can show a revenue trend that’s moving in the right direction, particularly if revenue shows consistent growth for several years, a buyer is willing to pay a higher price because they can anticipate making more money down the road. Buyers are more enthusiastic about purchasing a growing business.
3. Get systems in place
A business is a series of processes and systems that develops a service or product that can then sold. It is not a hobby or a way of life. To sell it at a good price, the business should be a well-oiled machine that can operate on its own without you. If that sounds like your business and you can demonstrate it, the price of your business will go up. Buyers place higher value on companies that can run themselves. If not, then you can choose to accept a lower price or get to work now to put those processes, procedures and systems in place.
4. Take care of details
Your business may sell at a higher price if you have all of the details in order for items such as titles, leases, debts, supplier contracts, and other obligations readily available. If you don’t have these details readily available, you appear less professional and unorganized which may make a potential buyer have second thoughts. Gathering all of the needed information can take time and time kills deals. If success hinges on location, you’ll want to have a long-term lease nailed down, but if you’re outgrowing your space, a short-term lease is better.
You should be aware that the general economy, the buyer, the value of the assets, the local market and other factors can all have an impact, but these four factors will help you get the best price for your business. The key thing to understand is that, for a small business, cash flow is the key factor because buyers are concerned with how they’ll make money after the sale.