It’s Baffling How Little Thought Owners Put Into Maximizing Business Value When Preparing for a Sale
When the time comes to sell a business, owners naturally want to obtain the highest possible return on their investment, right? Unfortunately, many owners overlook the significance of how to prepare for a sale, leading to missed opportunities and undervalued businesses. Maximizing business value not only ensures a more substantial financial gain but also signifies the culmination of years of hard work and dedication.
I am always shocked speaking to business owners when they have finally made the decision to sell; invariably, the price is too high and they leave money on the table at the same time. Kelly, how can the price be too high and be leaving money on the table? That is a great question. They make a classic mistake….going for a valuation too soon and not covering all of their basis.
As business owners, the thought of selling your company might not be at the forefront of you mind, much less considering maximizing business value because selling is often an emotional decision rather than a strategic one. It’s not your fault. You have been told to “get a valuation up front, so then you know what you’re dealing with.” Unfortunately, that’s all wrong. However, it is crucial for entrepreneurs to recognize that maximizing the value of their business should be a continuous and strategic process. This article delves into the importance of preparing a business for sale, outlines steps to maximize its value, and emphasizes the human aspects and buyer demands that can significantly impact the overall worth of your company.
Understanding the Sale Process
Before delving into how to maximize business value, it’s crucial to understand the sale process itself. Preparing for a sale involves meticulous planning, financial evaluation, and strategic decision-making. Some common mistakes include undervaluing the company, neglecting necessary improvements, and insufficiently considering legal and compliance matters. To really understand the complexity in today’s market of selling your business, check out Chapter 8 “Due Diligence and Closing the Sale” from Maximizing Your Exit Strategy: A Guide To Selling Your Business in Today’s Market. Click Here. In this chapter you will learn the thoroughness of the due diligence process and the steps it takes to close the sale. It takes more than wishful thinking; it takes dedication, persistence and patience.
Steps to Maximize Business Value
Conduct a Business BreakThrough Session
In nearly every business book I’ve read, they recommend getting an appraisal or business valuation as the starting point. So, everyone runs to get the business valuation first. However, that’s approaching the process of selling your business backwards. The first step in preparing for a sale is to conduct a comprehensive business e-valuation called a BreakThrough Session (BTS). A BTS systematically evaluates your business from a 5-point inspection perspective, i.e. finances, marketing/sales, operations including technology, production/equipment, and human resources.
Professional appraisals are important, but it is too soon in the sales process and certainly not the place to start. We want to dig deep into your company provide you with an accurate understanding of your company’s opportunities to maximize business value. This third-party unbiased assessment serves as the foundation for subsequent improvement strategies, and eventually a business appraisal that has real concrete value.
Improve Financials and Profitability
Buyers are naturally attracted to businesses with healthy financials and a track record of profitability. Prior to a sale, owners should focus on improving financial metrics, reducing unnecessary expenses, gathering the supporting documentation and maximizing revenue streams.
Strengthen Customer Relationships
Strong customer relationships not only contribute to current profits but also enhance the company’s long-term value. Engaged and loyal customers are more likely to attract potential buyers and ensure a stable customer base post-sale. Plus the cost of good-will is priceless.
Enhance Operational Efficiency
Efficient operations result in increased productivity and reduced costs. Streamlining internal processes and optimizing resource allocation can substantially boost a company’s value. Managing inventory and cleaning out the closets are a good first step to supporting the financial picture.
Invest in Marketing and Branding
A well-established brand and effective marketing strategies can significantly differentiate a business from its competitors. Increased brand recognition can attract more potential buyers and elevate the company’s perceived value. All too often, companies overlook the importance of branding your brand in marketing materials and telling one consistent story across the board.
Develop a Skilled Workforce
Beyond financials and strategies, the human aspects of a business play a pivotal role in determining its worth. A strong company culture, dedicated employees, and a positive public image can sway potential buyers in favor of the business.
So, regardless of whether you have a formal human resources department, a competent and motivated workforce is a valuable asset. Business owners should invest in employee development, talent retention, and succession planning to demonstrate a sustainable and well-organized business structure.
Diversify Revenue Streams
Relying heavily on a single product or service can be risky for potential buyers. Unless they are looking to expand or supplement their own products and services, you might find an uphill battle to sell your company at the highest valuation. Diversifying revenue streams reduces this risk and positions the business as adaptable and capable of withstanding market fluctuations.
Protect Intellectual Property
Intellectual property, such as patents, trademarks, and copyrights, can significantly impact a company’s value. Ensuring proper protection of these assets is crucial during the sale process.
Streamline Legal and Compliance Matters
Untangled legal and compliance matters instill confidence in buyers. Addressing any outstanding legal issues and ensuring compliance with relevant regulations is essential. This also means, buyers will look for potential risks during the due diligence. By identifying and mitigating these risks in advance, sellers can maximize business value and make it more attractive to buyers.
Considering Perplexity and Burstiness in Maximizing Business Value
Apart from the traditional aspects of business value, it’s essential to consider perplexity and burstiness. Perplexity refers to the complexity and uniqueness of a business that makes it difficult to replicate, adding to its value. Burstiness refers to the potential for rapid growth and expansion, demonstrating the untapped opportunities that can attract buyers.
Engaging the Buyer: The Human Side of Business Value
Once you have your house in order and operating at peak performance, you want to engage with the buyer and make an irresistible offer they can’t refuse. To attract multiple buyers, create a compelling and professional presentation (commonly called a “pitch deck” or “information memorandum”) that showcases your company’s value proposition, financials, operations, management team, and future opportunities. It should tell the story of where you started and where the company is headed. Demonstrate potential for future growth that might involve developing new products, expanding into new markets, or increasing marketing efforts.
By following these strategic steps and considering both financial and human factors, you can significantly enhance the worth of your business. This preparation will not only lead to a more profitable sale but also serve as a testament to their hard work and dedication.