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10 Steps to Maximize the Value of Your Business:
Erik Ottem, VR Business Brokers

1) Management:
Do you have a manager that can take over operations of your business?  Is there a key employee that will make managing the business day-to-day easier for a new buyer?  Most potential buyers won’t be experts in your business, they want to invest in a business with experts.  The quality and depth of your management team and employees is a tremendous asset for your business.  Good employees and management enhance business value.

2) Books & Records:
Your accounting can be Quickbooks or financial statements prepared by your CPA.  The quality of the books puts the buyer at ease by providing comfort that your business is substantial, and that you are being open and honest in the portrayal of these records.  There is more to this than just accounting, your policies and procedures should be documented too.  Layout your return policy, credit policy, HR policies, procedures manuals for getting and booking sales and manufacturing product.  All these elements help the buyer understand exactly what your business does and how you do it. 

3) Competitive Advantage:
Why do customers do business with you?  You must be doing something a little different, and you may not be thinking about it because you’re busy doing it every day.  Do you have some special intellectual property?  Special customer relationships?  Unique location?  Special permits or license?  Being able to describe why you’re different and why someone would want to buy your company to gain that edge is important.

4) Reputation:
Businesses that have been around a while will collect prestigious customers.  This is a chance to show off your reputation.  Industry experience that allows you to do the tough jobs, get the difficult accounts or make money in a business when most don’t is important to buyers of your business.  Has your business been referenced as experts?  If so, it is an attractive element for a potential buyer.

5) Customer Diversity:
Having a broad selection of customers makes potential buyers comfortable with your revenue future.  Too much of the sales, perhaps 25% with a single customer might be a warning sign.  Diversify your customer base to reduce risk.

6) Product Diversity:
Similarly, if you are a one product company, there is significant risk if something happens to reduce sales of that product.  Having multiple products that appeal to the same customer base provides a lower risk profile. 

7) Profit Pipeline:
A person will want to buy your business because it’s profitable.  In fact, it’s more important to grow profits than sales.  Show the careful attention you’ve taken to improve profitability in terms of product mix, cost controls and marketing promotions. 

8) Key Contracts:
Most businesses have long-term relationships that are keys to their success.  These need to be documented.  If you have ongoing purchase agreements with your major customers, you should be able to identify them.  Identify your building lease, and if necessary improve your relationship with the landlord.  Many of these leases have provisions for an increase in the rent, if one is imminent, that needs to be mentioned, since that will impact the business plan the buyer is putting together on your business.  This kind of information comes up in the due diligence anyway, so better to mention it early and build trust with the buyer.  If you license key parts of your operation from someone else like franchise fees or IP licenses you should disclose that also.

9) Professional Team:
Make sure your advisors are on board.  Your attorney and accountant will be involved in the sale of your business, so make sure you make them aware of your intent.  They will want to look good for the new buyer in the hopes of getting a client to replace the one they lose when you sell the business. 

10) Growth Plans:
Most buyers want to know what the seller would do to improve the business.  Even if the seller has been so bogged down with the day to day work of running the business they can’t do it, it provides a guide for the buyer to improve things.  Your experience and drive will help direct the buyer in thinking of ways to improve your business.  By helping to lay out some potential future directions, you’ll be helping the buyer to visualize how to take the good thing that you’ve built, and make it even better.

Final thoughts:
It can be hard to keep pushing sales when you’ve decided to sell your business.  Because it often takes several months to sell your business, you need to keep sales and profits up.  Poor results can hurt the price for your business.  When buyers see sales drop off they start thinking there are problems with the company or maybe with the industry.  You have to stay on top of sales and keep them moving even when the company is for sale.  You should have your sales pipeline well documented and logically laid out so the potential buyers can see the work that you’ve done for them to take over.  It reduces cash flow concerns for the future and helps you get the price you deserve for your business.

Erik Ottem
VR Business Brokers
1101 S. Winchester Blvd D138
San Jose, CA 95128
408-261-3230