FIRST 4 of the Top 8 key factors that dramatically increase the price for your business
The sale of your business will be one of the most important transactions you will make in your life!
Your business is your livelihood and often a large part of your life:
In many cases your business will be worth more than the family home. In some circumstances your family home will be financing your business.
- It is an investment in your future.
- It may represent a retirement fund.
- You may have sunk the family savings into your business.
Chances are you will either be thinking about buying a business or will be asked if you want to sell your business?
- So it makes sense to protect and build the value of your business as much as possible.
To be prepared to get the best price for your business you need to know the key factors that influence the price of your business.
- Your first response to an offer for your business will have a massive impact on the final outcome.
We have put together the TOP 8 factors that we have found have dramatically increased the price of businesses and helped them achieve the sale price they want.
Below are the FIRST 4 factors. Which ones could you implement now to increase the value of your business?
Key Factor #1 – Meeting financial goals
It stands to reason that if you have a well performing business it will be worth more than an equivalent business performing badly. Most significantly we found that 70% of business owners who were meeting their financial goals had also received an offer for their business in the last 12 months. In many cases these businesses had received multiple offers from the same party.
If a buyer can see the business is meeting your financial goals, chances are it will meet theirs as well. This reduces the risk of the purchase as the buyer will have more confidence in the future cash flows and be more willing to pay a premium for the business.
This means you not only need to make sure your business is performing well, but also be able to demonstrate this to a potential buyer.
Key Factor #2 – Expose your best side with structured financial reports
No one likes an unflattering photo of themselves – and a business is no different. It is one thing to have a set of financial reports ready to show a potential buyer, but do they highlight the best features of your business?
Do they show the growth in sales you have achieved? Do they highlight the products or services that have supported the business? Are the profit results “clouded” by adjustments for taxation reasons? Do they show the products or services that generate the majority of profit.
There is nothing wrong with restructuring financial statements to show the true operational nature of a business, as long as the restructuring can be demonstrated as accurate and reasonable. In some cases financial statements can be “recast” before assessing the value range of the business, to remove items that are not relevant to the transaction or the buyer.
The value of a business is based on the future cash flows the buyer can achieve. The easier a buyer can see where these cash flows come from, the more prepared they will be to offer a good price. Having well structured financial reports makes the valuation process so much easier for the buyer.
Key Factor #3 – Get your best response to an offer ready to fire
You pick up the phone and someone says they are interested in your business and would like to make an offer – what do you do next? Do you panic, laugh or ask why? Or do you stay calm, gather details and give them an appointment? How you respond next will often determine whether the buyer offers a “low ball” price or realises that you know exactly what you are doing and must be serious about any offer.
And when they give you an offer price how do you know if it represents a fair and reasonable offer? On what basis do you explain the business is worth more?
What if you knew you could implement some new ideas over the next 12 months that would double the value of your business? How would you handle the offer?
The best answer to this question is to be prepared. Be aware of what your business is worth, have a plan in place to increase its value and know what exit options are available.
Our recent survey found that many business owners had been “pursued” by the same company over several years, each time increasing the offer. If you have to scramble to respond to offers and requests for information it simply gives the buyer control of the negotiation process. This usually means you won’t get what you want for all your hard work and investment.
You must be prepared and ready to stay in control.
Key Factor #4 – Competition for your business
This is one of the best ways to have a massive impact on the sale price of your business. Listed companies often use this strategy to flush out a better offer, or defend a low priced offer.
Creating competition for your business is the same as the excitement and demand created in an auction. But this key factor is not all about a “public auction” for your business – it is about creating genuine demand from a number of parties that want your business. This means that the parties must know your business and at least have the perception that it is performing well with opportunities for the business to perform even better.
Often this demand comes from making the business “visible to others” in the normal course of business. This can include issuing the correctly-worded press releases about new contracts, providing “strategic announcements” on your website, or securing new deals that your competitors have missed out on. There are many other great ways of getting potential buyers to sit up and take notice, and therefore create demand for your business.
In some circumstances the competition can be created between two strategic partners that you already do business with. These people will know your business and understand the real value. And when the commercial discussions are managed properly, the result is often a dramatically higher price than you would have achieved through a more traditional sale process.
Do one or do them all!Each of these key factors has been instrumental in helping businesses increase their value, streamline negotiations and realise the full potential value of the business.
The earlier a business addresses these key factors, the more value they are likely to create. In fact these are not just key factors in increasing the price of a business, they are also effective strategies for managing the business.
They can help a business become more profitable and be more rewarding to manage.
Imagine the impact that more than one of these factors would have on your business? How much more profit (and value) could you create by implementing all four strategies?
Unfortunately these strategies don’t just happen overnight – they take time to plan and implement. Just the process of getting your financials ready can take several months, and creating competition for your business or meeting your financial goals can be a one or two year process.
This means that action has to start as soon as possible in building the value of your business and preparing your business for sale.
There is STILL MORE ways to increase the value of your business These are just four out of many ways you can increase the value of your business. They have worked for real businesses in boosting the value of their business. They have made the process of selling a business easier and have often reduced the risk to the owner of not getting the best price.
And there are at least four more real and results-driven ways that increase the value of a business, making life easier for the owners and streamlining the process of selling a business.
In fact the next four value-boosting factors are even more effective and powerful than the ones listed in this article. The next four factors can help you create greater profits as you grow your business and attract the right kind of buyer that is capable of paying the full potential value of your business.