Sell Your Business For What It Is Worth

By Steve Williams CExP™, CMMA

undesired outcome deal with the devil

If your business is a key personal asset, then selling your business is one of the most important things you will do in your life. Selling a business and getting paid what it is worth is always a significant challenge. Here are six moves you can make as a business owner to ready your business for sale that will be accretive, or increase the value of your business at the time of sale.

“Don’t be afraid to give up the good to go for the great.”

John D. Rockefeller, oil tycoon and philanthropist

1. Strong Management Team

The first move you can make is get the right people around the management table. You, the owner, do not want to be the only senior voice of experience that drives value. You want a team of people that can work together to develop solutions for the most complex problems or opportunities. Ask yourself this question: if I was forced to step away from the business for six months, would my business grow or decline? If you are not 100% confident it will grow, then you need a stronger management team.

2. Clean, Good Financials
300px Headache touching foreheadGood financials is a two part move. First, your financials need to be objective and verifiable, and they need to clearly and simply reflect what it takes to run the business. You do not want to be explaining your financials; they need to speak for themselves. Secondly, you need a steadily increasing top and bottom line. But having profitable years is not enough for buyers. Cycles, significant declines, or inconsistent results, even for just one fiscal year, cause potential buyers to ask questions about financial risk.

3. Good Processes
Buyers want businesses they are sure they can run at current levels or even improve upon. To this, they are looking for businesses that have repeatable processes that are going to succeed the business transition or sale. Your processes cannot be contingent on specific individuals; they must be entrenched in the business even if key personnel were to leave.

4. Revenue Certainty

Of course businesses have greater value if revenue has consistently been increasing, but buyers want to know this will continue. They will look to de-risk revenue forecasts by looking at what clients or revenue streams have a high level of certainty of continuing, even after the business is sold and ownership changes.

rev certainty Historical and Predicted Fixed Line Subscription in China 1975 2016

5. Be Strategic
Strat Plan Focus Group
There’s an old saying: plan the work, and work the plan, and this is very applicable to business valuation. A business that can demonstrate it has had an enterprise-wide plan, and has been successfully executing on this plan, shows potential buyers many things they want to see. The business knows the industry it serves well enough to call its shots and make them happen. It also says past success is not luck – it was part of the plan – which makes it more likely to be repeatable. And lastly, it tells the buyer the business is sophisticated enough to identify and capitalize on market opportunities and minimize market risks. All these things put more money on the negotiating table

6. Have a Competitive Moat
Moated Castle

The last of the six moves is another way to make sure your business sells for what it is worth. During due diligence, a buyer will want to ascertain impacts of the competition. How likely it is a current or new competitor can impact your sales funnel. If your company has a product or service that your competitors cannot deliver at the level you do, and your clients see your difference as being very important to them, then you have a competitive moat. In other words, you have an advantage over your competitors that will be very hard for them to offer in the marketplace. This increases your value, as it de-risks the decision to buy your business.

Buyers Buy Good Companies, and Pay More for Great Companies
boardroom

All of these moves can be done independently, and maybe you already have some in place. A company that can complete all or many of these moves before going to market to sell their business will sell for more than a business that does not have these attributes. If you have time to prepare your business before you exit, focusing on these six moves will increase your enterprise value at time of sale. This is all part of your overall exit plan so you can sell when you want, to whom you want, for what you want.

Contact a certified exit planner to make sure you meet your family and financial needs.

Steve Williams is a Partner at the Incentica Advisory Group in Calgary. Steve has done over 100 strategic plans for some of the biggest and best companies in Canada.

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Steve Williams CExP™, CMAA

Partner, Incentica Business Plans
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