When selling your business you will get lots of opinions regarding how to value it. There are several accepted valuation methodologies accepted by valuation experts. However, as a seller of a business you should know what “soft” items create value in the mind of a buyer. In addition your business broker should emphasize and sell those elements. Lets list just a few of the elements that increase value of a business.
1. Clean Books and Records: Having clean books and records in a software and up to date is critical and in this day and age inexcusable for not having. Why is it important? Because buyers generally in most cases have not bought the type of business you are offering and can’t understand the the business without a road map to reference. In addition given that most buyers are first timers and are scared to death of making a bad decision they will invariably have advisers (formal like a CPA, and informal ….their uncle with the fancy SVP title) who will be leaned on for advice. Without books and records to reference they will inevitably give negative feedback on any deal presented.
2. Large and Diverse Customer base with repeat Revenues: This should be easy to understand. Few customers creates risk by concentrating revenue and profit in a small pool. The old adage about “eggs in a basket comes to mind”. Do not have more than 20% of your revenue concentrated in one customer and also clearly understand the margin from that volume customer as it relates to the profits. In addition, repeat or as we call it “annuity” revenue should be looked at more favorably by business buyers if they are smart as it creates a consistency in the revenue and margin runs of a business.
3. Low Hanging Fruit: If there is low hanging fruit pick it. Identify the cost elements that can me reduced or consolidated that often times go unnoticed by the operator. Payroll costs, Insurance Costs, Healthcare Costs, personal benefits, discretionary or freebies at the very least should be identified if not attacked to improve your bottom line. Do not say it can be done….do it! The buyer will want you too as will their banker.
If your business broker simplifies the sale down to a simple multiple of cash flow and does not up-sell the value items of a business then what are you hiring. Sales is an art and your choice of business broker should be largely predicated on their skills in sales and in shaping the marketplace to enhance your business sales price.