Some business owners pass their businesses on to their adult children using estate-planning or gifting strategies. Others believe that the sale of their business represents a prudent way to maximize the value of their holdings. Yet, when it’s time to sell their business, they have only a vague idea of what the business is worth. Many business owners have developed tremendous skills needed to run their businesses but are unsure where they sit in the marketplace, and few have planned for their transition from the business.
Conduct a Strategic Review A smart first step is to hire an impartial third party to provide a strategic review. This review will reveal strengths and weaknesses of the business, which will help position the company when it’s time to sell. The current merger and acquisition process includes an intensive physical of a business. Buyers will take a deep dive into all aspects of the business. They will review documents and conduct interviews to confirm everything you tell them about your business. That means reviewing extensive financial, legal and human resource records.
Increase the Value of Your Business
Depending on the particulars of a business, companies can take advantage of dozens of strategies to boost their value. Following are just a few items to consider:
- Pay attention to the income statement. When potential buyers evaluate your business’s worth, they’re concentrating on earnings, specifically cash flow. Revenues generated from products or services that are not profitable will hurt the value of the business because they reduce profit margins and increase overhead. Ultimately, the value of a business is derived from the transferrable cash flow and the ability to generate this cash flow in the future. The quality and sustainability of cash flow is evaluated during the sale process and will be scrutinized during the Due Diligence phase.
- Understand your business and accentuate your strengths. Companies that build strong brands or serve market niches are usually more valuable than their counterparts that attempt to serve everyone. Evaluate your competitive advantage, concentrate on what can be improved, and play on your strengths. This builds value and will fuel financial performance.
- Plan for a transaction before it takes place. You can’t start planning soon enough for the sale of your business. Typically, a sale takes 6–12 months to complete, and many people believe you should start planning at least two years before the process begins.
This is just the tip of the iceberg. Many other factors need to be considered when increasing the value of your business. Small steps now could lead to a more profitable and easier transaction in the future. Contact us today, and let our experienced professionals help you maximum the value of your business.
If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.
