Long before the sale process begins, you must make the major decision to sell your business. If you are planning to sell in a year or five years, ensuring you take the right steps can help position your business for greater value, create a smoother transaction, and increase the profit. If you want to elevate your valuation and attract serious buyers, here are five critical steps you can take pre-sale.
1. Strengthen Recurring and Diversified Revenue
When it comes to value, buyers put a higher value on predictable income. Long-term contracts with customers, subscription-based revenues, or repeat, steady clients signify lower risk, which appears more valuable to buyers. Heavy reliance on a few large customers, especially if your business is somewhat cyclical and seasonal, will signal risk for buyers.
Start diversifying customer sourcing, increasing customer retention, and creating and looking for opportunities to create predictable revenue streams now. Even minor adjustments to structure can alter perceptions of your business
2. Build a Self-Sustaining Management Team
Major buyers frequently wonder: “What does it mean when the owner is no longer part of the business?” If your business relies heavily on owners for daily processes, it may limit the chances of selling or force a lower selling price.
Create a leadership structure that can operate independently of you. Delegate key leadership responsibilities for people, documents, and processes, and give managers the authority to act on behalf of the owners. A well-trained, self-sufficient team not only increases value, but it also builds the buyer’s confidence that operations will continue with minimal disruption after the sale.
3. Clean and Organize Your Financials
Messy or inconsistent financials will quickly discourage any buyer interest. Accurate and comprehensive financial records indicate to buyers that your business is professional and stable.
Accountants can assist you with producing clean financial statements that comply with GAAP principles. Normalize your EBITDA by identifying add-backs for owner compensation or one-time expenses. Consider a financial review or audit to build buyer trust.
4. Differentiate Your Business
To achieve a premium, your business must differentiate itself from competitors. Do you have proprietary products or contracts? Is your reputation for quality well established? Are you in a niche with limited competition?
Recognize and document your business’s competitive advantages, and be prepared to demonstrate how it leads to growth, loyalty, or efficiency. Buyers are investing not only in what you developed, but what you’ve established as a competitive advantage.
5. Eliminate Surprises
Buyers desire certainty. Legal issues, unresolved tax liabilities, or unclear contracts can result in derailing a deal late in the process.
Be proactive in reviewing your contracts and leases, employee agreements, and any compliance obligations. The fewer surprises there are in due diligence, the quicker and more confident the buyer will feel about moving forward.
Closing Insights
Enhancing your business value does not require an extreme change; however, careful planning is required. By following these five steps, you can improve the marketability of your business, increase the quality of offers you receive, and control the sales process more directly.
Jason Sanders | Managing Partner
517 206 7464