Ways to Add Value Before Selling a BusinessReady, set, sell

A company that is well positioned for future growth is one that investors want to buy. If you’re looking to sell, it’s important to make your business more attractive to potential buyers. Here are some strategies:

1. Obtain a professional valuation

A professional valuation can provide objective market evidence of what similar businesses have sold for and key value drivers. Valuations are very useful seeing that many business owners overestimate how much their business is worth.

When it’s time to sell, knowing the company’s strengths and weaknesses can help maximize the price. However, work with a valuation pro early on as preparing the company for sale often takes years.

2. Relinquish control to employees

A common turnoff to potential buyers is dependence on key people. All too often the owner has held tight reins on the company’s strategic direction and day-to-day operations, acting as CEO, plant manager, product development head and lead salesman.

The business needs a solid management team that’s capable of replacing the owner and all the roles they play when it’s time to sell. Hiring qualified people and learning to trust them doesn’t happen overnight. Some people won’t have what it takes; others may leave for greener pastures after you’ve invested time and money in training. In terms of receiving a premium price and minimizing the need for the seller to provide post deal consulting, the payoff for assembling a competent management team can be substantial.

3. Review contracts

Prior to negotiating a deal, most buyers want all administrative issues squared away. Before putting the company up for sale, review all contracts, including:

  • Annual audit engagements,
  • Customer contracts,
  • Employment and noncompete agreements,
  • Equipment and facility leases,
  • Franchise agreements,
  • Insurance policies, and
  • Loans.

Agreements that are unsigned, nontransferable, outdated or expired — as well as relationships that are based on a handshake with the seller — may be seen as risk factors to potential buyers. Sometimes, the seller may find that the company has matured or market conditions have changed, putting the company in a better position to negotiate more favorable contract terms.

4. Invest in the future

Investment in new equipment, maintenance and repairs, and updated technology is required for businesses to generate future cash flow. Although many business owners don’t want to make these major investments prior to selling the business, doing so can make the company more competitive, reduce costs and lower risks.

Work with an expert

Working with a valuation expert will help business owners go beyond the few steps mentioned for preparing a business for sale. Valuation experts will direct owners on correcting weaknesses and showcasing strengths, thereby maximizing their bargaining position with buyers.

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