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Selling your business is a big decision, one that should be well planned, often years in advance. In many situations, it may be to your advantage to maximize its value.
Several internal and external considerations come into play. While it may not be possible to impact external factors (such as the competition or government regulations), the same is not true for internal ones.
To increase your business’s value and maximize its selling price in a potential transaction, we recommend the following.
1. Sales growth
Investors will find a developing business more interesting than one in decline. If you can show sustained sales growth, it’s more likely that a potential buyer will be prepared to pay a higher price.
2. Earnings quality
This is vital. How can you expect someone to be interested in buying a business with astronomical sales and no profits? For a shareholder or business owner, earnings (or cash flows) are the return on invested capital. The higher they are, the greater the value.
3. Human resource stability and quality
A buyer will find an organization with a well-structured work force more attractive (regular employee turnover, well-trained employees, low occupational accident rate, etc.).
4. Brand image
This includes the reputation of the business’s products and services on the market as well as the quality of its marketing process.
5. Contracts
The existence of exclusivity contacts, procurement agreements, advantageous leases, franchises or patents can set the business apart from its competitors, providing added value.
6. Sound financial situation
Is the debt level appropriate? How does its working capital compare to the industry? The better the ratios, in comparison with other industry sector businesses, the better its chances of a higher sale price.
7. Client variety and loyalty
It is generally acknowledged that 20% of clients generate 80% of revenues. While a diversified clientele is important, it’s also important to instill client confidence and encourage loyalty by being attentive to their needs.
8. State and value of tangible assets
Consider the business’s capital assets (land, building, state-of-the-art equipment, etc.).
9. Growth potential
This could be unused production capacity that a potential buyer could use to increase sales and earnings.
10. Market niche
A business in a market with attractive growth perspectives is more appealing to a buyer, it should be innovative and always stay ahead of the competition.
We can help you plan your business’s sale and maximize your sale price. Our firm has experts and contacts in all areas of management, particularly tax, business valuation, human resources and financial advisory.
Don’t hesitate to contact us if you have business valuation questions or requirements.