By Ryan Velez
Many people who start a business love the autonomy it provides, but equally important to running a business is knowing when it is time to let things go, and how to go about doing it. In fact, some experts, like Michael Gerber, author of The E Myth, suggest the only reason to build a business is to sell it. However, many people either wait too long to think about selling their business or don’t give it any thought at all until their hand is forced, leading to them into not making the best deals or getting the most value out of their sale. Black Enterprise has recently compiled several tips that you can use to increase your business’s value before selling.
One thing you need to keep in mind is that many accountants try to help you lower your tax burden by decreasing your profitability, which many will say is a positive step to make. However, this works against you when it comes to getting ready to sell, as profitability and value are directly related. Generally, 3-4 years before you want to sell, you’ll want to start optimizing your business to try and start maximizing profits. When you do this, you will also want to take note of any abnormalities in your books. One example is that if you own a restaurant and wanted to replace the hood system, this cost would be removed because it is not “normal” and does not happen every year.
Another thing to keep in mind when it comes to raising value is looking at your employees. Do you have a lot of family or friends working in the business? You may want to reevaluate this and start bringing on non-related staff before getting ready to sell. If a buyer is looking at your business and they see a mass exodus, they will see it as less valuable and a bigger risk. At the same time, make sure that you create an employee retention program of some sort to keep critical employees as a part of the business. This will make a potential buyer more comfortable that their key employees will stay through the transition.
In addition, even though you may be winding down, the business won’t be even after you sell. Try and put together a growth plan and get your sales team ready to go. If your business looks like it is progressing rather than stagnating, this will do quite a lot for the value of the business.