How do I Increase Business Value?

Every business owner should be interested in how to increase the value of their business.

This goes hand in hand with why many businesses don't sell.  The simple fact is:  Most businesses don't sell.  Learning how to increase the value of a business will go a long way to make sure business more marketable and more attractive to potential buyers.

Especially most of FSBO businesses.  Hopefully this page will shed some light on why.

Reasons why businesses don't sell:

  • Business not priced correctly - The business price should be roughly based on the financial performance and with most businesses being marketed using "blind" information, potential buyers do not get a full sense of the business via the initial ads.  Thus if the business price is pretty high compared to the reported profits, people will pass without even inquiring further.
  • Bad or No Records - Having no records to show a buyer or poorly kept records will only scare them off, at best they'll have little confidence and lowball you.  Furthermore, no bank will finance a business unless it has good records and verifiable income.
  • The Business is a Job - The business has no systems or procedures in place.  The business relies completely on the owner's presence to operate correctly.  People buying a business want something they can step away for a couple weeks and not have it fall apart.
  • Poor Marketing - The business is not marketed in the right location or method.  Hiring a realtor who specializes in residential real estate is a common example.  Most realtors don't have the experience, knowledge or resources to properly value or market a business.  Also, some businesses need to be marketed to specialized targets and not through public channels.

Increasing Value

OK, so with these reasons why most businesses don't sell in mind, lets discuss what you can do to address those areas of concern and effectively increase business value.

  • Price the Business correctly - Your business needs to be priced around 2-3 x's the Cash Flow or Seller's Discretionary Earnings in most cases if you're serious about selling your business. Some businesses can go for more, but these are special businesses in very unique niches and most likely generating over $1MM in sales annually.  Recasting your financials correctly are vital to this step.
  • Keep Good Records - Keeping good records will Vastly increase your chances of selling and selling for what your business is truly worth.  Try to report everything you can (cash) and hire a bookkeeper to help you keep things in order, save all receipts and file timely tax returns.  Most buyers need bank financing - a bank wants to see verifiable income, not claims of "this is a cash business".  
  • Create Systems - Delegate!  Teach employees to take over day to day responsibilites that you normally handle - teach others to run your business for you.  Have backup procedures and policies and create process flows that others can follow in your absence.  Then take a vacation and test it out... You just may find that don't want to sell afterall, especially if your reason for selling is burn-out!
  • Use a Business Broker - Thats right, a shameless plug for people like me.  We don't increase the value of your business per se, but a competent business broker has a better chance of selling your business and getting you a higher price, so you realize more value of your company when its all said and done. Afterall, it's our specialty, we value businesses, market businesses, screen and qualify buyers and negotiate business acquisitions every day.  


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