5 ways to increase the value of your business before you sell
You’ve worked hard to build up your business. You want it to pay off in a profitable sale, but how do you make that happen? You know how to sell to your customers, but the person who buys your business won’t have the same needs.
Selling a business is a whole new ball game, but don’t worry—we’ve put together a list of strategic moves that will help to maximize your business’s value.
1. Diversify your income stream
Businesses are more valuable when they present less risk to a buyer. You might have a portfolio of loyal customers who trust your expertise in one particular product or service, but what if something happens to that market?
You can price your company significantly higher if you add an income stream or two. This doesn’t have to cost a lot or take a lot of time. Consider adding a product or service that’s related to your area of expertise but might draw in new customers. For example:
- Add a product to your service-based business, or vice versa.
- What related services do your customers have to go elsewhere to get? Add one of those to your portfolio.
- Do your team members have niche expertise? Offer consultancy services.
The more needs you meet, the more resilient your company will be and the higher you can price it.
2. Secure customer loyalty
Business buyers often worry that a potential acquisition’s customers are loyal to its owner and not to the company. Your job is to prove the opposite.
Recurring business agreements
If you have contracted or contractable customers, contact some of your stalwarts and biggest spenders. Ask them what value you can provide going forward and negotiate long-term agreements. That way, you can show potential buyers that they’ll have guaranteed revenue from the moment of purchase.
If you’re trying to sell your website or eCommerce store, don’t worry. You can still establish evidence of customer loyalty, even if there’s no way to guarantee that any individual person will buy in the future.
A word on loyalty programs
Loyalty programs are omnipresent these days, so it’s no longer enough to just have one. You’ll need to go a step further and offer incentives that market research has shown will appeal to your customers.
Paid premium programs are drawing in high-value demographics. In 2017, 75 percent of younger millennials and 77 percent of older millennials reported that they would consider joining such a program. Once you get your program established, you can show a buyer that you have X number of customers on board.
Omnichannel loyalty programs, which offer rewards for taking different kinds of actions—like making a purchase, spreading the word on social media, or referring friends. These kinds of programs can show your buyer that your customers are engaged with the brand. Partnership reward programs connect your company with others.
Take Fuel Rewards, for example. This successful program provides incentives for buying Shell gasoline as well as for booking travel, buying at participating eCommerce stores, and engaging with featured offers.
3. Motivate employees to stay long-term
Buyers don’t want employees to jump ship any more than they want to lose key customers. Experienced team members are critical to keeping a recently purchased business running, so do what you can to make sure yours will stick around after the sale.
- Offer vested interests or profit-linked bonus offerings that make staying more attractive than leaving.
- Get some of your key people to sign contracts agreeing to stay. Make sure it’s worth their while financially.
- If you know your buyer will need to cut staff, do it yourself in advance so you can offer good compensation packages. Your remaining employees will notice and appreciate the gesture.
- Work employee contracts and incentives into your purchase agreement. Make your people feel taken care of.
Remember, buyers like security. If yours knows that you have a team that will stay in place, an offer will probably reflect that.
4. Automate your workflow
Automation is a great way to show that your team doesn’t need a lot of hands-on guidance. Thankfully, there are dozens of tools out there that can help you organize your team, streamline your operations, and provide accountability. They include features like:
- Task assignment and deadline notifications
- Report generation and data access
- Workflow modeling
- Mobile and/or offline access
Automation tools are particularly helpful when you’re selling a location-independent business. They show the buyer that your business has a well-defined structure and doesn’t depend completely on your micromanagement. When the buyer can see exactly how the wheels turn, he or she can trust that they’ll keep turning even after you let go of the reins.
5. Tidy up your balance sheet
To value your business, potential buyers are going to look at your books. Trust us, they’ll offer more money if you can show them a profitable enterprise.
Start looking over your financial records a year or two before your anticipated date of sale, or as soon as you can after you decide to sell your business. That way, you’ll have time to make any necessary changes. For example:
- Focus your resources on consistent, repeatable, and high-margin earnings. You want these to outweigh the inconsistent or low-profit sales.
- Work on reviving older accounts to emphasize long-term client relationships.
- Check for depreciation that might outweigh replacement costs, then replace that equipment.
- Invest in the assets that make your company an attractive purchase. These might be physical, like your inventory, or intangible, like your expert marketing team.
- Standardize your accounting systems so that your buyer can easily understand them.
Ultimately, your goal is to show strong cash flow, minimal expenses, and managed risk without changing any numbers. Think of your records like a dating profile for your business—you want them to look as good as possible while still representing your business accurately.
If you’re looking at how to increase the value of your business before you sell, remember these critical points
- Make sure you have more than one income stream.
- Get concrete evidence, like contracts or loyalty programs, that prove the business will have revenue post-sale.
- Motivate your employees to stay on after the sale. Offer financial incentives.
- Introduce automation software so your business is as low-maintenance as possible.
- Manage expenses and prioritize earnings so that it’s clear your business is a money-maker.
Remember, you’re looking to get the best possible return on the investment you’ve made in your company. Don’t over-spend to make yourself look good, but definitely do focus your resources on changes that will count.