Business owners often grow their organizations through operational improvements. However, extracting maximum value from that enterprise when the time comes to sell is an entirely separate skill. Business buyers are selective and research-driven. They want critical proof points that demonstrate a strong company poised for future prosperity before they commit to an acquisition. Fortunately for sellers, there are several strategic moves they can make to address buyer concerns, substantiate their growth story, and maximize the ultimate sale price of their pride and joy.
Know the Numbers
When selling your business, you must have a comprehensive understanding of your financials. You should be able to quickly provide historical revenue and profits, balance sheets, cash flow statements, taxes, debts, AR/AP, and more. Quantifying and qualifying these metrics for the past three to five years enables you to support an asking valuation and identify any red flags upfront. Having orderly books and clear financial reporting demonstrates operational stability and helps prevent buyers from undervaluing the company during negotiations.
Get the House in Order
In addition to getting the numbers right, you should ensure your business “house” is in order before putting the company on the market. This means reviewing and organizing legal documents like company formation papers, contracts, leases, patents, insurance policies, etc. If any business practices or agreements are outdated, ambiguous, or vulnerable, steps should be taken to modify or replace them beforehand. Tidying up the company structure, paperwork, and compliance aspects shows buyers the business is institutionally sound.
Value the Assets
An important exercise is for you to comprehensively list and value all business assets to be included in the sale. This asset inventory encompasses tangible assets like property, facilities, inventory, systems, and equipment, as well as intangible assets like intellectual property, patents, branding, data, contracts, licensing, certifications, etc. Itemizing everything the buyer is obtaining establishes a justified price floor and leaves less room for negotiation. It also shows buyers exactly what they are getting in meticulous detail.
Develop Sound Financial Projections
In addition to quantifying historical financials, you should spend time developing multi-year financial projections to demonstrate company stability and growth prospects to prospective buyers. Conservative revenue, profitability, and cash flow forecasts assure buyers that historical trends can be sustained and built upon going forward. When backed by sound reasoning, financial projections establish confidence in leadership strategy and growth potential, increasing company valuation.
Clean Up the Customer Base
Maximize valuation by cleaning up bloated, outdated, or undesirable customer accounts before putting the ‘for sale’ sign up. Eliminating one-time clients, non-paying customers, hassle clients, and non-profitable segments streamlines the revenue base and shows dependable recurring cash flows. Providing a scrubbed customer list also allows a buyer to spot which accounts influence ongoing revenues and target customer retention efforts appropriately after an acquisition.
Tighten Supplier Agreements
Before putting your business on the market, negotiate improved rates, contracts, or terms with key suppliers, vendors, and partners. Lowering COGs and extending payment timing on vendor invoices enhances cash flow visibility. Updated supplier contracts and agreements pass those improved terms onto the buyer, increasing the future profit margins and making the business a more attractive asset to purchase.
You can maximize your sales potential and valuation by clearly documenting financials, tidying up legal and operational aspects, thoroughly inventorying assets, forecasting growth, scrubbing your customer base, and improving supplier contract terms. Taking these proactive steps demonstrates operational stability, growth prospects, and a strong leadership strategy that buyers are willing to pay premium valuations to obtain.
