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How to improve the value of your business to a buyer

In working with business owners on the sale of their businesses, we always start the process with a business valuation to determine what we feel the company would sell for in the market place. And it probably comes as no surprise that many business owners are hoping for a price greater than what the market probably will pay. Why this occurs is there is no public database of what businesses sell for that a seller or buyer can research to arrive at a value, especially if there is no real estate included. Because of this, a seller is left to what they might read or research online to try and develop an idea of value and unfortunately there is no concise method, which leaves a seller optimistically placing a value on their company.

Tim Dalton, President Integra Business Brokers

So if the number is not where the business owner wants it to be, what can be done to increase the value? Remember it is almost always the buyers that determine value, as they are the ones paying the price for a sale. So some areas to improve a business’s value are as follows:

Financial performance – make sure your company’s financial statements are up-to-date, clean and reflect the true financial performance of your business. We all want to pay as little as required in taxes and many business owners are, shall we say, creative when writing off some business expenses to lower the bottom line to pay less in taxes.

Recurring revenue – buyers are looking for businesses with recurring revenue. If your business is more of a one and done service or product for your customers, the business will have less value to a buyer. Try to integrate some source of recurring revenue. Start thinking like HVAC companies that now have maintenance agreements or car washes that for a monthly recurring fee will allow you to have unlimited washes. These are examples of business industries that have embraced the recurring revenue model.

Replaceable seller – many businesses were started by the owner and that person has most likely worn every hat in the business. It’s good they know all the positions, but have they been able to delegate and separate themselves from performing the primary duties of the business. As a business owner, you don’t want to be the best or only sales person. You don’t want to be the only person that can trouble shoot a customer problem or know how to purchase inventory or equipment. A buyer is most likely not going to have as much experience as the seller of the business and the more that the seller is viewed as hard to replace, the less value the business will have to a buyer.

Reputation – Google, Facebook and all other forms of social media make advertising your company a lot easier, but your business reputation can also be highly influence by social media. Word of mouth used to be about the only way to build a reputation. Took a long time to build a good reputation and took some time to start taking one down, but now with social media, reviews are instantaneous and your reputation can move quickly. A buyer wants a business with a strong reputation and anything less will negatively affect value.

Uniqueness – as a business owner you need to differentiate yourself from your competition to see increased value in your company. There is always going to be competition in the market place, but if a buyer sees your business the same as every other competitor, there is no reason to pay a premium for the business. You need to stand out in a positive way.

There are several other factors buyers will take into consideration when making an offer on your company and happy to discuss those with anyone interested. However the key is to address all the factors the best you can, as soon as you can, to establish a track record of change. This will help you achieve the highest value for your business.

Integra Business Brokers

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