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9 Ways to Dramatically Improve the Selling Price of Your Business

If you have given any thought to selling your business, it’s not too early to find ways to enhance the value in order to achieve better price and terms.  The more time you have, the more you can do to increase the value.  Even if your plans are short term, there are still steps you can take.  Here are 9 key things you can do to enhance the value of your business:

1. INCREASE YOUR BOTTOM LINE:  There are many ways to accomplish this, but generally they center on increasing revenues and reducing costs.  Increasing revenues can be accomplished through the development of new markets that need the unique benefits of your product or service; by re-designing your products; sales team development; using differential pricing; acquisition of other businesses or product lines and many other methods.  Cost reduction, especially in manufacturing, can be achieved by changing the materials, finding new vendors, improving your purchasing process, implementing lean manufacturing processes and many others.
2. BEGIN DOING AUDITS:  While many small to mid-size companies do not want to incur the cost of an audit, going without can frequently be more costly, especially if your company has more than $10 million in sales.  Some buyers won’t even consider a seller who does not have an independent audit.  That might be the buyer who is willing to pay the most for your company and the difference could be much more than the audit cost.
3. MANAGEMENT TEAM DEVELOPMENT:  Make sure that you have quality managers in place and use them.  If you personally make every decision and are involved in each relationship, the business depends on you – this will discount the value any buyer will pay, perhaps by as much as 30%.  If you don’t feel you can trust your management team to make appropriate decisions, you may need to develop or replace them.
4. DECREASE RELIANCE ON KEY CUSTOMERS AND VENDORS:  If your largest customer accounts for more than 15 – 20% of your business, the price of your business will be discounted.  The higher the concentration, the higher the discount, and in some instances it may make your business unsellable.  Similarly, if you are dependent on one vendor, your business will be valued lower – so eliminate that risk by developing more vendor relationships for key materials.
5. ELIMINATE VALUE KILLERS:  Your team can help you identify value killers that can stand in the way of your goals in a transaction.  For example, who would want to buy a business with an environmental cleanup or a recent accident or OSHA violation?  Make sure your programs and policies meet industry standards and go beyond.
6. CLEANING UP FOR SALE:  Do a cleanup and spruce-up of the physical facilities before any prospective buyers visit. 
   
7. REMOVE “ADD-BACKS”:  Remove as many non-core business expenses as is reasonable will both raise your bottom line as well as remove potential points of negotiation in the sale process.  The earlier this is done, the longer track record you can show without those expenses, the less chance you will have of having that hurt the purchase price.
8. A GOOD M&A ADVISOR IS WORTH A MULTIPLE OF THEIR FEE: Good M&A Advisors will significantly increase the value of a business through bringing more buyers to the table and running them through a process.  Setting up a competitive process and having quality materials are two of the most important things you can do at the time of sale to improve the price and other terms that are important to you.  The better price and terms will more than pay for the advisor’s fees.
9. HIRE AN EXPERINCED DEAL TEAM:  At a minimum your team should include an outside tax advisor, an attorney with deal experience, an M&A advisor, yourself and perhaps your CFO.  It is important that each of the outside advisors, especially the attorney and M&A Advisor, know and have had experience in business transactions.

There are many other things you can do to improve price and terms.  Over time, these steps could increase the value of your business.  If you’d like to learn more, contact Don Feldmann or Brent Rippe at Rippe & Kingston Capital Advisors to discuss this further.