If you’re a business owner who has spent your time and energy building a company, it’s very likely you will want to sell that company eventually. This is an understandable and financially necessary goal for most owners. Selling a business is much more complex than selling a house, however, and there is far more at stake financially. This is why you need to take business attractiveness seriously.
The day-to-day responsibilities of running a business can distract owners from anything but trying to make a profit. But if you’re an owner who wants to make a smooth and profitable sale, you should build the business with the idea that you will want to sell it someday. This forces you to see it objectively and make adjustments that will make it more attractive on the market.
An added bonus of considering business attractiveness is that the changes you will make to make your company more salable will also make it run more efficiently, profitably, and independently. There are benefits in the short, medium, and long term. So what are some methods of improving business attractiveness?
Ways to Improve Business Attractiveness
It’s always smart to bring in a team of professionals to help assess your company because they can be objective when you, the business owner, may not be. This team would include an exit advisor, a lawyer, an accountant, and an appraiser at different stages in the exit planning process. To begin, it’s essential to understand what your company’s value is now. This is the appraiser’s job.
It’s smart to be realistic about your company’s valuation. Take what the appraiser tells you and learn from it. You can’t improve something if you haven’t honestly evaluated it. That valuation gives you a starting point and an initial benchmark against which you can measure improvement.
From there you can begin installing value drivers and making your company stronger and more attractive to buyers.
One key value driver is a good management team, one that will run your company seamlessly according to established policies and procedures. Making sure that you have a skilled management team that will remain in place following a sale reduces owner dependency and telegraphs to buyers that the company is a worthwhile investment.
Clean company finances are also crucial. A buyer should have access to at least three years of financials, and they must be produced by a quality accounting firm and and easy to understand. Any buyer will want to know that your company is financed on permanent sustainable footing with working capital lines and financing for fixed assets at a reasonable interest rate. The more control your business shows over its spending and finances and the higher cash flow it has, the more buyers it will attract when it is put on the market. A business with a strategic plan for growth will also give buyers confidence and build excitement.
Another important value driver is a strong customer base. A company that gets most of its business from one or two large customers is a bet many buyers will not want to take. Buyers want to know that the business can afford to lose a client or vendor and still thrive. Companies in certain economic sectors can’t always avoid customer concentration, but the ideal business has a broad and diverse customer base. If your business can show that it has customer contracts and is on approved bid lists, this will help convince buyers that your company is robust and can weather an economic challenge or two.
Finally, establishing and growing a strong brand will also attract buyers. If you are uncertain of the strength of your company’s brand, type it into a search engine. The internet will tell you how your company ranks, what images are associated with it, and what customers’ reported experiences are. If a simple search brings up bad reviews, lawsuits, or scandals, you have some work to do. At a minimum you should have an attractive logo, consistent branding, and a polished online image. Buyers will judge your company by its appearance online, so make sure that what’s there looks professional.
Business attractiveness shares some things in common with curb appeal, but it is far more complex. Unlike a house, your business has to run well in addition to looking good for a buyer to want to make an investment in it. At Prometis Partners we always advise our customers to begin the exit planning process years before they plan on selling because some of the above steps take time. If you act early and make changes that will establish good management and build cash flow, though, you can be assured of a much better outcome when the time comes for you to exit your company. Contact us today if you would like help with any of this process.