Wouldn’t it be nice to have the option to sell your business in the future for a hefty price?
The good news is that there are proven strategies you can use to increase the value of your company and make it attractive to potential buyers. Whether you want to sell your business next year, in 5 years, or just want to have the option in the future, you should start laying the groundwork today to make it a possibility.
I suggest that you keep this list handy and refer to it in your ongoing strategic planning efforts to always be considering how you can improve each of these areas. Even if you just make a small 5 or 10% improvement in each of these areas per year, you can potentially double or triple your company’s overall value every few years based upon the multiplier effect of improving each area.
1. Recurring Revenue
The most attractive business is one where there is recurring revenue coming in from customers month after month. Monthly, quarterly, or annual subscriptions are a great way to create recurring revenue if that makes sense for your type of business. The key is to focus on creating repeat customers who keep coming back to you.
2. Intellectual Property Registrations On Key Brands
A great way to make your company attractive to potential buyers is to have strong intellectual property protection. You do this by obtaining federal trademark registrations on your company name and product/service names, and copyright registrations on your products. Having the proper intellectual property registrations also reduces your future potential liability to third parties by protecting your brand names and documenting your right to use them.
3. Organized And Up To Date Financials
It is also important that you keep your financial records organized and up to date. If your company records are a mess, your company will be unattractive to a potential buyer, or worth a lot less.
4. Well-Documented Systems and Operating Procedures
A company that has well documented systems and operating procedures is much easier to take over than one that does not. It is also far easier to train new employees when you have high quality documentation in place that they can follow.
5. A Clearly Documented Strategic Plan
Companies that create detailed strategic plans and follow through on executing those plans are more successful than companies that operate in the dark and hope to be successful. You should create a detailed strategic plan so that you have a roadmap for your own success, and can also show a potential buyer that your company is going places that they want to be a part of.
6. Unique and Compelling Products and Services In A Strong Industry
If you have unique and high quality products and services, your business will be more attractive to a potential buyer. Also, if you are in an industry that is strong, that is also important to a potential buyer. Some industries become obsolete over time as technology continues to advance. Look at what happened to Polaroid cameras when digital cameras were invented.
7. Steady Cash Flow and Growth
Steady cash flow and annual growth will also make your company more attractive to buy.
8. Rate of Return
You should always look for ways to cut unnecessary expenses and increase your profit margins. That will increase your rate of return on the business. The expected return that a potential buyer will be looking for will also vary depending on the risk involved in your line of business. The higher the risk that your business operates under, the greater the return that potential buyers would require in order to assume that risk.
9. Employees That Can Operate The Company Without The Owner Being Present
You need to be able to demonstrate that the business can continue without you. Even if you don’t have a team of people, you should at least have a second in command who could continue assisting the new owner.
10. Proper Financing
Potential buyers will also be concerned about the type of outstanding loans you have, what your relationship is with your bank, and whether you have any demand notes that can be called in and made due at any time. Keep these issues in mind when you obtain new loans for your company.
11. Vendor Contracts That Would Be Easy To Transition
Potential buyers will want to see that you have contracts in place that they could easily take over.