Value is the driving force behind a successful small business exit/sale. By deliberately building and documenting real business value, sellers attract more prospects in the business-for-sale marketplace and ultimately receive higher sales prices for their companies.
But many small business owners don't think about building business value until they are ready to put their companies on the market. Faced with an appraisal that falls below their expectations, sellers desperately search for ways to quickly boost value--and are usually disappointed. At that point, it's too late to generate the kind of valuation they need to achieve their exit goals.
So regardless of whether you intend to sell your business later this year or many years down the road, the best thing to do is to get serious about strategically building your company's real market value.
Building Business Value
Building business value doesn't happen overnight--it's a process that requires time, focus and a carefully orchestrated plan to increase the value of both tangible and intangible assets. As you prepare your value-building strategy, there are a few high priority actions that are worth considering.
1. Get Organized
Valuation battles can be won or lost based on documentation and organization. For example, from a buyer's perspective a profitable business isn't profitable unless the seller can document a track record of positive business earnings. In addition to outlining your company's financial history, meticulously document the condition of business assets and create lists of liabilities, leases, and other tangible items that will be important to buyers. Creating an operations manual that helps a potential buyer understand the key elements of running the business will go a long way in building confidence in a buyer that they can successfully take over your business.
2. Grow Your Customer Base
One of the most effective ways to increase the value of your small business is to deepen and expand your customer base. If geographic expansion isn't feasible right now, think about expanding your product line or leveraging online channels to reach new market segments. At the same time, make a concerted effort to strengthen and document customer loyalty using customer surveys, loyalty programs, or any other similar tactics that will effectively collect measurable feedback. When buyers come knocking someday, these actions should result in a higher offer price for your business.
3. Nurture Your Brand
Your company's brand has real value in the business-for-sale marketplace, especially if you have taken steps to raise its profile in your market or industry. Consider new marketing efforts that can build your company's value in both the short and longer term. If you haven't promoted your brand online, now is the time to get started. Today's buyers are very interested in companies that have an Internet presence that includes a well-trafficked and highly effective business website.
4. Cultivate a Workforce Development Plan
For a new owner, the quality of your company's existing workforce will be a determining factor in post-transition success, and therefore how much they might pay for your business. Since buyers want assurances that the workers they inherit are capable and motivated, it's important to create and document a robust employee development program with retention rates that meet or exceed industry averages. Take actions to ensure your most valuable employees will stick with the business through salary reviews, profit-sharing, or other incentive plans.
5. Improve Your Physical Assets
A new coat of paint can go a long way toward impressing prospective buyers. But to generate real business value, think about making meaningful improvements to your facilities, equipment, and other physical assets. After you clean up any deferred maintenance issues, consider expanding your facilities or upgrading to the latest technologies to significantly improve your company's appraised value. Companies that are prepared to compete successfully for years into the future will have significantly higher value to potential buyers than one's that are behind the times.
Building business value isn't complicated. As a small business owner, you know your company's strengths and weaknesses and can probably list several strategies that would make your business more valuable to potential buyers. All that's left to do now is convert those strategies to action items. Make 2013 the year you begin to substantially increase your company's real market value.