7 steps to increase your business’ value—before you sell it
Canada is in the midst of a major shift in business ownership as baby boomers retire.
According to a BDC survey of over 1,500 Canadian small and mid-sized business owners, 9% of entrepreneurs in Canada at the time were expecting to sell their business within the next five years.
“With so many sellers on the market, the competition could be fierce, especially for those who haven’t taken the right steps to prepare the sale of their business,” says Sylvie Ratté, Senior Economist at BDC.
Entrepreneurs need to properly plan and prepare for a transition, rather than make cosmetic changes.
The following steps will help business owners ensure they maximize the value of the business they've put so much effort and time into building.
1. Seek advice
You should work with an experienced outside advisor who can help you prepare your business for a sale, including having an expert valuation conducted.
Selling your business is one of the most important moments in your life as an entrepreneur. Professional advice will help ensure you get it right.
Consider tapping key advisors, including your bankers, accountant and lawyer to identify serious prospective buyers. You may also want to hire a consultant who specializes in business transitions.
2. Work to boost your profits
Don’t expect high offers if right now you’re only breaking even.
You also don't want to take too much money out of the business. Good retained earnings on your balance sheet—the portion of the net income that hasn't been distributed to shareholders—indicates to buyers that the business has been profitable and is healthy.
One of the best ways to boost the value of your business is to show solid performance and profits in recent years.
3. Increase sales and lower expenses
Analyze your processes and look for ways to increase operational efficiency, cut costs and control inventory without affecting your operations. Brush up your marketing plan and find ways of boosting sales, including tapping new markets or offering new products and services.
Focus on creating a diversified customer base that, ideally, generates recurring revenues.
4. Continue to invest and improve
One of the biggest mistakes business owners make is to take their foot off the accelerator after deciding to exit.
The moment you stop investing in new equipment, maintenance and process improvements is the moment you start reducing the future value of your company.
A business that has limited potential due to outdated buildings and equipment is usually worth far less than a firm that has maintained its capital assets.
5. Create a strategic plan
A formal plan that presents measurable goals and milestones for the coming years will give your business credibility as a growing concern with long-term potential.
6. Develop repeatable processes and empower your people
The processes in your business need to be repeatable and teachable, advises John Warrilow in his book Built to Sell: Creating a Business That Can Thrive Without You. "If your business can't function without you, you will have a hard time finding a buyer," Warrillow says.
Also, train, motivate and empower your people. Pay particular attention to the management team. Work to solve any internal conflicts and strive to keep employee turnover rate low. A strong, professional team adds value to the business—especially in companies with few tangible assets.
7. Stand out from the crowd
In many ways, selling your company is a marketing challenge of its own. That's why it's important to showcase to potential buyers whatever differentiates your product or service from the competition. Ask some of your long-time clients for testimonials explaining why they are doing business with you and what keeps them coming back.
Next step
Download the free BDC guide, Preparing your Exit Plan, and create an exit strategy to help ensure the future success of the business you’ve built.