5 Ways To Maximize Your Business Valuation And Get The Deal Of Your Dreams

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Selling a business is the number way to cash out and achieve a fortune. You’re able to sell your business at a few times what you earn annually. There are a few things to focus on to increase your odds when you’re closing a deal. Reading on will help you deal from a position of strength in offloading your business.

 

1. Increase Profitability – Discounted Cash Flow Analysis

This is the bread and butter. Cash flow and profits determine how much you can get. Plan ahead on expanding your successful strategies in marketing and customer retention. Each dollar of cash flow you gain, will pay off many times over.

Analyze your balance sheet, cash flow statement and income statement. Circle everything that doesn’t directly contribute to sales. Many of these expenses can be slashed. Who would want to buy into dead weight?

Creating an upward trend in growth and profits to help you get the largest multiple. Growth does give value, but it does excite potential buyers into offering higher valuations.

Smaller businesses often receive a 2-3 year multiple of their value. Some industries can give you a 5-7 year multiple. Fast-growing companies in technology and pharmaceuticals can yield multiples over 10.

Working with a professional business brokerage will give you the most certain valuation. They work with many buyers and see what is selling in your industry.

 

Discounted Cash Flow

Other buyers use the discounted cash analysis as a reality check on the yearly multiple. This is a fancy term for looking at if the business would earn a buyer more than the 3 percent a treasury bond would yield. If a business earns $100,000 a year it would be worth $3,333,333 in bonds.

This is because the $3,333,333 would earn $100,000 a year if it was put into treasury bonds. Many experienced investors use this to see if the extra work of running a business beats the returns from owning a passive security. You can divide your cash flow by 3 percent to see.

Look into working with a broker to help you value your business properly. These methods are the only rule of thumb estimates. Brokerages will know what values business purchases are actually closing for in the current market.

 

2. Deepen Your Recurring Revenues

Many businesses can generate high revenue without being valuable. This is because much of their customers go in one door and out of another. High revenues are not as impressive as they sound.

These businesses are the equivalent of spraying lighting fluid on dirt. They might a pretty flash, but they are dependent on advertising or a fad. Experienced buyers know that revenue alone doesn’t mean anything.

A buyer prefers to see a list of recurring customers who’re likely to stay for a long time. This demonstrates that your product or service has a lasting value. It also helps your buyer feel more confident in investing in direct response advertising to grow the business even higher.

You can read more about increasing your recurring accounts by reading here.

 

3. Simplify Your Processes

Keep molding your business so that it no longer requires your constant intervention. If the buyer can’t remove you from the business, then how will they recoup their money?

They’d have to hire you as a full time employee to see their money back. The would-be owner wants to be confident they can build on your current success. Don’t be afraid of replacing yourself so you can focus on bigger picture things.

Take the time to organize your files and your inventory. It demonstrates that you are on top of the business and understand how to control it. Avoid making the firm feel like a renovation project. This also removes a possible objection to purchasing your company.

Look for processes that can be handled by computers. Consider using an auto-responder for basic business inquiries. Other businesses have successfully implemented chatbots for answering questions on their websites.

Delegate other tasks to employees in clear and spelled out steps. Work with each employee to make an informal standard procedure to perform common tasks. This makes it makes it easier to find and replace employees. This will transform your business into a more predictable and profitable asset.

 

4. Retain Your Key People

If you leave and your employees leave too, then the buyer has to basically start from scratch. Finding a buyer who would go for that is like finding a needle in a high stack.

Write down the names of your essential staff members. Draft a simply diagram of who performs certain functions within your business. This makes it easier to know who you can afford to cut loose. It will also make it much easier to explain how the business works to potential buyers.

Make sure your employees are okay with the idea of you leaving. They should be comfortable working with the new owner. It can help to stay on as a consultant for a few weeks or months to smooth things over.

Your goal should be to get your employees to be independent from you as possible. This will make stepping into your company much more attractive to prospects looking to buy your firm.

 

5. Stand Apart To Get The Most Value

If you have a generic business with no brand, it isn’t really an asset. It may be a lucrative activity or job. A brand has a certain meaning and place in your customer’s minds. Branding can help you outlast opponents who would try to undercut you on price.

Think of the specific position in the market your product offers. Does it offer the most premium value or does it offer speed? Are you known for service? Do you appeal to a specific part of the market?

Stronger positioning boosts your bottom line and make your firm a stronger investment over the long term. Be able to explain the distinct things you offer customers that the competition doesn’t. People pay more for scarce things. It sounds basic, but it’s easy to overlook.

Feel free to read more about positioning in the market in this article.

 

Summing Up The Most Important Parts In Selling A Business

Buyers look for profit and upward momentum when they’re considering a business. Get all of your balance sheets and statements prepared to be able to show this growth. Make sure your systems and branding are in order too. When your business has a strong brand, strong systems, and a strong profitability, it will fetch the highest multiple in the marketplace.

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