As a business owner, you naturally want to sell your business for the highest possible price. Your business represents your life’s work and getting a great price for it will help ensure you will be able to accomplish your goals in retirement.
Making cosmetic changes to a firm at the eleventh hour before putting it on the market can only end in disaster. Business valuation in the GTA has picked up immense traction for this reason. This process provides business owners with key information to help maximize the value of the business, resolve risk areas and other weaknesses, and properly prepare for a transition.
In this article, we reveal 5 preemptive ways to maximize the value of the business beforehand, even if a sale is not yet on the horizon.
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Diversify Revenues
Potential buyers want to be assured of recurring and increasing revenues. It is therefore extremely important to not be too dependent on any one key customer and ensure your customer base is diversified. The more you can expand your revenue sources – whether that’s by exploring new customers or new product lines- the higher the chances of attracting top bid.
A diversified clientele ensures that you don’t place all your eggs in one basket. This strategy buffers the firm against losing a major customer.
Now uncovering new audiences and new products isn’t a walk in the park. This takes market research and strategic decision making that involves meeting with your customers to get better insights as to what works and doesn’t work for them. This understanding helps create new opportunities in previously untapped markets.
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Make Viable Long-Term Plans
Buyers are more open to paying top dollar if you’ve charted out a well-defined road map for attaining higher returns down the line. You have to understand what potential buyers’ goals are and how to strategically deploy tactics to meet those goals.
Long-term strategic plans take some work. They include high-quality, quantitative and substantiated forecasting that illustrates future growth (in sales and earnings). A track record of historical revenue growth will add credibility to your future growth plans. Planning your growth and then demonstrating your growth will help convince potential buyers that your future growth plans are achievable.
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Hire Quality Executive Personnel
Your business needs to be a viable prospect from the viewpoint of a potential buyer. The executive team is vital to the equation. Building a team of competent, successful people translates into business success even after the sale. The key, however, is figuring out what you need to do to keep these successful people on your team for the long term.
If the buyer thinks that the business isn’t strong enough because the top management is lacking (or a flight risk), they might have to take it upon themselves to hire new staff. In their eyes, this is time-consuming and off-putting as there is no one to run the business immediately after the sale is complete.
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Demonstrate Scalability
A scalable company is one where the profit margins grow along with the revenues. This means that expenses do not rise in lockstep with revenues. For instance, certain professional services like say a law firm, aren’t very scalable because profits are dependent on individual lawyer billing fees. To grow revenue, the number of lawyers have to increase but this, in turn, increases costs.
On the other hand, a software licensing firm is more scalable because the cost to produce the software after it is created is very low. The added licensing revenues that come in will grow not only overall revenues but also profit margins and cash flows.
You need to ask yourself how scalable your business is. The more scalable it is the greater the growth potential and the greater the value of the business.
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Obtain a Professional Business Valuation
Business valuations are an integral financial tool for every business owner.
All business owners will exit their business eventually. Having an independent, reasonable and supportable valuation conducted well in advance of the predicted exit date will ensure that you don’t get the short end of the stick on this crucial transaction.
Why is business valuation important? A professional business valuation serves as a roadmap. It details not only the strengths and weaknesses of the business, but also its economic worth backed by solid data and not simply emotions or biases.
If during a transaction, you were to haphazardly provide your client with a figure based on a hunch or figures from past deals, this wouldn’t be very convincing from their viewpoint.
That is why the information collected from a business valuation dispels unrealistic estimated business values and provides a concrete understanding of the health of the business to owners, stakeholders, partners and employees.
Plus, potential buyers will trust numbers generated independently rather than in-house.
IT’S NEVER TOO EARLY TO GET A VALUATION DONE!
Granted. You may not be in the midst of a buy-sell agreement right this very minute, nor do you see yourself selling your business any time soon. Don’t take a gamble. An unforeseen dispute or unexpected offer could crop up when you least expect it!
Contact VSP to learn how we can set your business up for future growth.