PLAN AHEAD. GETTING READY TO SELL: Increasing Value Without Increasing Profit

By JoAnn Lombardi, VR Business Sales/Mergers & Acquisitions, President

Can you increase the value of your business without increasing its profits? Ask your accountant or other financial professionals and chances are they will draw a blank. Or they will answer “no”. But the truth is that you can, and the concept of how you do it is astoundingly simple. You increase the value of your business when you take the appropriate steps to attract the appropriately qualified buyer.

To achieve the best result, smart business owners approach the selling process with the same planning and discipline that they use in the day-to-day operation of their business.

These simple steps will increase the value of your business without increasing your bottom line:

Plan ahead. Smart business owners know that their business will either transfer or close. There is no alternative. Your company is a product. It will be treated as a prize to be won or as a piece of distressed merchandise to be acquired at a bargain price. How a business is treated can often be traced back to the timeliness and appropriateness of the owner’s decision to sell.

Take stock of your business. You must step back and take a long objective look at your business. Without objectivity, your business cannot be packaged to attract the most advantageous buyer and command the highest price.

Position your company to sell. A good definition of positioning is, “it’s not what you see those counts, but how you see it”. Buyers are looking for opportunity. Often this means stepping in to correct problems so that future profits can be made. It is just as important to know what’s wrong with your company as it is to know what’s right.

Identify the right buyer. If your company could benefit from strong marketing, then you should include in your potential buyer profile significant strength in that area. If your company lacks customer service, then someone with special skills in that area would be a good candidate. Remember, not all buyers will pay the same amount for your business.

Set realistic price and terms. This doesn’t mean you should accept one cent less than your company is worth. But is does mean that unless you can confidently defend the price and terms you set, you will lose the confidence of the buyer and your sales price will suffer.

Refine your organization. You should take steps to ensure that your business does not depend upon you for its survival and success. The highest quality buyers are seeking a company to manage and don’t want to buy businesses when they see the current owner as indispensable.

Prepare your financial records. Comprehensive, professionally recast financial records are a must if you want to attract buyers willing to pay a premium for your business. Wellmaintained records present you as a savvy owner and your business as professionally operated. Solid financial records greatly reduce the buyer’s perception of risk.

Review your lease. Lease issues and landlords can represent one of the biggest “deal killers”. Your lease provides you with a “license” to operate a business in a particular location. Without a lease, your business may be of no value to a buyer. Take the time to review your lease. It should address assignments and should be valid for a minimum of three years. If it’s not, renegotiate it before you start the sales process.

Obtain an accredited and/or third-party valuation. One of the most valuable tools at your disposal is an accredited and/or third-party business valuation that supports your asking price. Buyers are much more likely to pay top dollars for a business when documented evidence can be provided that supports the price. Non-owner sources of financing will insist on a business valuation before they even consider funding.

Prepare a business profile / offering memorandum. You must provide information beyond the financial statements. Buying a business isn’t just a simple mathematical exercise involving the “number”. Smart buyers want more. They want customer concentrations, industry outlook, marketplace forecast, future influences from technology, industry margin comparisons, operating ratios analysis, stability of tenancy and much more. A comprehensive business profile / offering memorandum that includes this type of information will greatly enhance your business’s prospects of selling.

Valued Representation. Selling a business isn’t a “do it yourself” project. You should assemble your team early on. You will need marketplace, legal and tax assistance. This typically means a team comprised of your business intermediary, attorney, and tax accountant. Valued Representation is the service VR provides by offering the resources and experience to present your business in its most favorable light.