Are you thinking about selling your business? Whether you’re considering selling in a few months or a few years, selling a business for the best price takes prep work. Start planning now for a future sale.
Luba Kagan, the business development and strategic partnerships manager at CoStar Group, shares seven steps you can take now to boost the value of your small business before you decide to sell it.
1. Increase your profitability
Potential investors will need proof your business is currently profitable. If you can show them these profits will continue to trend upward, you can sell for a higher price. Look for places where you can reduce costs and create efficiencies.
2. Create streams of recurring revenue
Find ways to increase sales and revenue, especially recurring revenue, that will generate income for the new owner—right from the "get-go." This may include shoring up any pending customer or vendor contracts, giving the new business owner peace of mind they will have consistent revenue flow as they get accustomed to running their new business.
3. Establish processes
Instituting and documenting regimented processes, which enable the company to function effectively without your involvement, will make buyers feel at ease. Potential investors need to be convinced that long after you’ve made your exit, the business will continue to thrive and run smoothly.
4. Cultivate a high-quality workforce
New owners don’t want to deal with employee turnover, especially when they’re new to the business. Experienced workers bring balance and stability and help to generate profit. You can increase your company’s worth by actively cultivating a high-quality workforce.
5. Stand out and differentiate your products or services
Businesses with differentiated products and services are uniquely positioned to dominate a part of the market. They have an advantage over their competitors and, therefore, can command a higher price. You can do this by developing and promoting any intellectual property, patents, or other unique feature of your products or services.
6. Identify and highlight tangible and intangible assets
It is essential to list and price all physical assets of your business, including furnishings, fixtures, equipment, and inventory. But also consider the value of your intangible assets—things like contracts and agreements, customer relationships, brand recognition, and more. Every non-material asset that contributes to your company’s profit line has the potential to boost its price.
7. Mitigate your risks
Put yourself in the buyer’s shoes. Do whatever is possible to enhance your company’s value. Are your financial records accurate and up-to-date? Is your facility looking its best? Are there any loose ends that you need to tie up before you list your business? Buyers prefer businesses that come with low risks and high rewards.
Taking these key steps will not only enhance your company’s value, it will also grow its sales, improve its profit margins, and help it stand out from its competitors. When it comes time to sell, your business will be more attractive to buyers and command a higher price.
Is it a good or bad time to sell?
Things have picked up modestly. Small business acquisitions grew 2% year-over-year in Q3 2023, continuing steady gains following a 13% drop in Q4 2022, according to BizBuySell’s Insight Report. BizBuySell also reports that business sale prices have continued to climb, which is more good news for business owners looking to sell.
RELATED: Selling Your Business: How This Entrepreneur Made the Transition From Founder to Employee