Many business owners spend a lot of time wondering, when is the right time to sell? There are many factors that go into that decision such a business owner’s energy level and passion for the business as well as current market and economic factors. But one of the most important factors of course, is the sale price. If a business is not currently worth as much as an owner is willing to sell it for, we will advise, in order to get that higher sale price, an owner must grow the business.
So, what are some things an owner can do to increase the value of their business?
Because small businesses are valued based on a multiple of the “net” (SDE or EBITDA typically), that means an owner simply needs to make the business more profitable. Easier said than done, we know! But that’s the plain truth.
Some steps to increase the value of your business:
-Increase Revenue – This could mean more business development from you or your staff? Or hiring and training salespeople or others to grow that top line.
-Increase Profits – If you have unnecessary expenses or employees that you can remove to pump up the bottom line, it is in your best interests to do so. The more money the business makes, the more money it sells for.
-Hire Employees – Will you need more staff to handle the increased sales?
-Clean Up Those Books – It is never too late to start practicing better accounting. This is one of the most important factors that reduce the value of the small businesses we see. Fact: buyers and banks want to see clean books. The cleaner your books are, the more your business will be worth. Limit (eliminate if possible) discretionary personal expenses you might be running through the business. Show as much profit as you can. More profit = higher sale price. We can only “add back” so many personal expenses before a bank and a buyer stop buying that story.
-Prep For the Transition – If you are the name and face of the business and you are doing all the work, a buyer understandably is worried that when you leave, there is not much value left. To the extent you can, find someone who can be a key employee and a right-hand person. Someone who would know the business and presumably stay with a new owner to help make that transition seamless and help ensure success after you are gone. Buyers want to see people in place they will be able to rely on when you are gone.
In many cases, when our clients really sit down and think about whether they have the energy and desire to grow their business significantly to increase that sale price, they come to an honest revelation…. They just don’t have that gas in the tank. If that describes you, then your business is worth today as much as it will ever be worth. But if you do have that drive and you think you can be successful expanding and becoming more profitable…then by all means, Transworld wants to help you now or later. We will be there throughout the process to offer advice and to check in so that whenever you are ready to sell, we can be there to assist.