If you are planning to sell your business, you have a clear interest in maximizing the value of your business before you go to market. The value of your business will depend on both your assets and your liabilities, so it is important to be thinking about both sides of this equation. Working with an industry professional like John Binkley Dallas to accomplish this is always a good idea, but in the meantime here are some things to have in mind as you think about ways to increase the value of your business.
Streamline your accounts
Make sure that your business accounts include only business assets and expenses, and that personal items are cleared from the books. This means that any assets not used for business purposes – including for example cars used by non-employees or vacation homes – should not be included, nor should expenses for similar non-business items be counted.
Pay yourself fairly
It may seem counter-intuitive, but underpaying yourself may actually devalue your business from the perspective of a potential buyer. Generally, valuation of a business will take account of return on investment calculations rather than return on labor.
Diversify your human capital
From the perspective of a buyer, there is cause for concern if there is a disproportionate amount of institutional knowledge in the minds of just a few people – to the extent that the continued success of a business may depend on them, this can be considered a liability. This applies to you as the owner, as well. To increase the value of your business in this aspect, broaden the expertise among your staff by making sure that qualifications and responsibilities are distributed across the workforce. Develop plans, including health and other benefits, to attract and retain skilled employees.
Keep your business plan current
When you started your business, chances are you had a defined business plan. If that plan has become outdated either because you have achieved everything it laid out or because you have shifted gears in some way, it is time to develop a new plan. Even if your plan is to carry on doing exactly what you are doing, you should have an explicit strategy and rationale for doing so, and for recognizing when it may be time to make changes. A demonstrated thought process about the future of the business which takes into account different scenarios and also the competition is a valuable asset.
Diversify your risk
Depending on your industry, there may be more or less opportunity to diversity your product or service base, but this is something that you should always be exploring as it is a key way to reduce the risk of reductions in a particular revenue stream. You should also be thinking about ways to diversify your customer base – if the loss of a particular customer account or of a particular revenue stream would effectively shut down your operations, this has a negative impact on how a purchaser would value your business.
These are just some of the things that you can consider as you look for ways to increase the value of your business.