With strong earnings and steady consumer demand, business owners have many reasons to feel optimistic about the future. In fact, according to BizBuySell's Insight Q4 2019 Report, median revenue and cash flow made substantial gains over the past year.
Still, many business owners are feeling anxious about the future. The market has shown increased volatility over the past year, with the US-China trade war, rising labor costs and a global economic slowdown. According to a recent BizBuySell survey, the top concern among small business owners in 2020 is a potential economic recession.
While many owners may see this uncertainty as just a few economic hiccups, others may see it as a signal to exit their business. In either case, now is a good time to be proactive and prepare your business to be in the best position down the road.
Five ways to increase the value of your company in an uncertain 2020:
There's no downside to proactively increasing the value of your business. But neglecting necessary improvements can be costly -- even if you're not planning to sell in the near future.
Owners often realize too late that they need to make major changes before they're sales-ready, resulting in delays and missed opportunities. To avoid surprises, it's important to preemptively organize and evaluate your business model using the following tactics:
- Make sure your financial records are in order. When potential buyers and brokers evaluate your business, they'll request financials going back at least three years. If you haven't been meticulous with your records, compiling them at the last minute will be challenging. In addition, sloppy reporting is a red flag for potential buyers that your business isn't responsibly managed. Be proactive by working with your accountant or bookkeeper to gather your financial statements and the following documents:
- Profit and loss statement
- Balance sheet
- Cash flow statement
- Tax returns for the last 2-3 years
- Additional financials to support financial representations
- Current lease
- Supplier and vendor contracts
- Insurance policies
- Professional licenses and certificates
- Employment agreements
- Maintain steady cash flow. Cash flow is the bread and butter of your business. Yet, it can be unsteady for a number of reasons such as seasonal business or complex transactions that take months. There are many ways to improve cash flow, such as invoicing clients quicker and motivating them to pay on time, encouraging your customers to buy more and save through subscriptions and loyalty savings plans, or simply reevaluating your operating expenses and streamlining your business processes.
- Tidy up your business. Your business should always appear neat and presentable, whether you run an online marketplace or a brick-and-mortar storefront. If it's a store, there shouldn't be extra equipment or clutter lying around. Similarly, websites and digital assets should be well organized and free of obsolete files. In addition to the physical components of your business, ensure your business complies with any regulatory requirements like health and safety codes.
- Prioritize a stable workforce. Skilled employees add value to your business, but high turnover will send potential buyers running for the door. Ask yourself if your organization could run smoothly regardless of its owner. A team led by a competent manager builds trust that your current employees will stick around after you leave, which is a major win for potential buyers. To create a team of devoted and loyal workers, offer better benefits and flexibility in scheduling.
- Make required investments and improvements. Business owners shouldn't make the mistake of thinking that because they're planning to sell in the near future, they can stop putting money into their business. Instead, avoid deferred maintenance items and keep investing in your business as if you plan to own it for many years to come. Now is the time to make necessary improvements, whether it's implementing innovative technology or replacing outdated machinery.
Although this period of uncertainty may be a source of anxiety for some small business owners, it's an opportunity to get your business in order and make sure it's in the best possible shape when you're ready to list it. Whether you end the year with a sale or not, you'll make your business more valuable and better positioned to succeed in the years ahead.