When the time comes to sell your business, whether or not it sells at a premium price and makes you a profit largely depends on your commitment to cultivating business value drivers during your time as an owner.
There are many different business value drivers, and they change over the course of time. Generally speaking, though, these are the things you want to keep in mind while you are a business owner if you are anticipating selling someday in the near or far future:
- A diversified and growing customer base. Many times, small businesses have one or two large customers that keep them afloat, and any time a single customer makes up more than 10% of your total business, that is a huge risk. Valuable businesses have a customer base that is varied, and growing over time to include more and more people.
- Quality management team and sales force. If you as the owner make up the entirety of your management team and sales force, then there is nobody to do those things once you sell. Valuable businesses have separate management and sales members from the owner, preferably people who are not related to the owner.
- Skilled and experienced employee workforce. Do your employees know what they are doing? Are they able to manage their own time well and meet their goals? What is the competency level of each employee—honestly? Valuable businesses are those in which the entire employee workforce does not need to be replaced once they are sold.
- Well-maintained facilities and equipment. Unless they are a wellspring of expendable income, no new owner will want to invest thousands and thousands of dollars in updating facilities and equipment that should have been updated by the previous owner. Valuable businesses keep their facilities and equipment as well-maintained and state-of-the-art as possible.
- Good reputation in both the industry and community. Many businesses have one or the other, but the number of businesses who have both is surprisingly low. Valuable businesses meet and exceed industry standards while also being well liked and recommended by lay people in the community.
- Documented business systems, procedures, and policies followed by management. Some businesses do not even have documented policies to follow, and oftentimes those that do, do not have any way to enforce those policies—especially if the owner or management is not following it themselves. Valuable businesses have all of their policies written down, from accounting, to operation, to ordering—down to the most minuscule details.
- Accurate and reliable financial and business records. The number of businesses who do not keep accurate and reliable record of their finances is surprisingly high—especially with small businesses. Whether you use a CPA versus a tax preparation person, a family member versus an unbiased third party, or a bookkeeping service vs. a do-it-yourself approach—all these have an effect on whether your business sells at a premium price. Valuable businesses have all of their financial affairs in order.
- Consistent revenue growth and positive cash flow. It should go without saying, but being able to keep things afloat without having to borrow money from elsewhere is a must. Valuable businesses demonstrate growing profits yearly.
When it comes to building their businesses, too many owners work in the business, rather than on the business. And if you want to sell your business at a premium price and make a profit when the time is right, working on your business is something that each owner must dedicate his or her time, money, energy, and resources to on a regular basis.
Janicek Valuation & Forensic Services, PLLC can help you get on track. Should you need business valuation assistance or have questions, please call one of our credentialed professionals at (615) 822-8342 or contact us via email.