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Adding Value to Your Business

If you’re looking to sell a business, it’s critical to look at the value of the

business.

But a typical business really has two values. The “academic”

value is

the one

determined by a professional business valuation. The

other is the “true

market”

value. The academic value is arrived at with a

formula based on the

firms’ hard

assets, cash flow, industry averages

and multiples. The fair market

value also

takes those items into

consideration, but then considers what buyers

are really

willing to pay.

For many small and mid-sized businesses hard assets like equipment,

vehicles,

land, buildings, and inventory may be limited. For some small

businesses there

may be no hard assets at all. Instead, their value is

based on intangibles like

employees, business processes, customer

lists, location and business

relationships. To maximize the fair market

value of your business, it’s vital that

you capitalize on those intangible

assets.

Develop key employees. Buyers generally are not interested in paying a
premium if the business relies on you for its success. Remember to
delegate responsibility to key employees and involve your key staff
members in the decision making process. Demonstrating that your company’
s success is reliant on your capable, well-trained employees – not just you –
will pay off at the time of sale.
Document what you do. Be sure that job descriptions, operation processes,
and strategic plans are documented. Documented records and plans give a
buyer greater comfort that he or she will be able to emulate your successful
growth and will help your buyer obtain financing. Also, be sure to keep
business records like sales and expense reports, internal profit and loss
statements/balance sheet, and tax returns clean and well-organized.
Build relationships. Name recognition, customer awareness and your
reputation are all part of your business value. Even if your company does
not have many hard assets, your relationships are key. Consider
diversifying both supplier and customer accounts.
Improve cash flows. A potential buyer wants to see the “true cash flow.”
And, of course, in the business world cash is king. Be sure you are driving
all income to the bottom line.
Review your assets. Sell off or dispose of unproductive assets or unsalable
inventory. Remove or buy off any assets that are primarily for your personal
use.
Find and build your niche. You don’t have to be everything to everyone.
Buyers will pay a premium for a niche that has barriers to competitive entry.
Remodel, clean, and organize. What’s the first thing anyone does when they
put their home on the market? They spruce things up and make sure
everything is in its right place. Yet, in business, that’s rarely considered. A
well-maintained facility will get the best price. Even businesses that lease
space can benefit from a thorough cleaning and organization to convey a
feeling of quality and efficiency.
Keep these important intangible assets in mind if you’re looking to sell your
business. They convey a value that financial statements alone do not. If you
are looking to sell, make a plan. Start working on the intangibles well in
advance of putting your business on the market. For many business owners,
they reach a point where they burn out and psychologically retire early,
before a sale is made. It’s important to work to keep your focus right until
the sale is complete.

Finally, when the time to put your business on the market arrives,

consider lining

up key specialists who will help you make the most of the

sale – an attorney, an

accountant, and a business intermediary to name a

few. Remember, you only

have

one chance to sell your business, so you

want to do it right.

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The International Business Brokers Association is the largest

international, non-

profit association operating exclusively for the benefit

of people and firms

engaged in the various aspects of a business

brokerage and mergers and

acquisitions. IBBA has 1,950 members

worldwide, with headquarters in Chicago,

Illinois.

reserved.

Permission to reuse any or all of this material should be

directed to the IBBA at

888-686-442 and is restricted to IBBA members.

Business Merchants, LLC
Phone 512-258-7300 Email inquiry@bmerchants.com Fax 512-258-7305

Contact us and schedule a confidential, free and no-obligation meeting to discuss
selling your business.
Phone 512-258-7300 or Email inquiry@bmerchants.com