You’ve put a ton of blood, sweat, and tears into your business, and now it’s finally time to sell. Whether you are selling an early-stage startup or an established enterprise that you’ve worked on for years, you want to get a fair price for your project, especially if you expect it to grow and continue to produce revenue for years to come.
But it’s one thing to have a number in mind when selling your business; it’s another to get potential buyers to purchase it for that price. To get the best bang for your buck, you need to know how to maximize the price of your business when selling. Fortunately, there are a few clever strategies you can employ in the months leading up to the sale to do just that.
How Are Businesses Valued?
There’s no 100% exact way to determine the value of any business, regardless of industry or niche. How can you put a number, for example, on the true value of a brand like Apple or a small startup that you began a few years ago? It’s also impossible to predict how such companies will perform in the future.
That said, there are two primary ways a potential buyer for your business may try to value or appraise it. These are:
- Certified business appraisals, which are prepared by reputable business appraisers/professionals. You may wish to hire a business appraiser before selling your company to know how much you should ask for that enterprise, but keep in mind that it can cost several thousand dollars. Certified business appraisals are also necessary for important business decisions, like shareholder agreements or estate planning.
- “Ballpark” appraisals, which can be performed by business brokers, advisors, or certified public accountants (CPAs). These are more informal value estimates and are often used when selling a business to another company or a private buyer. Ballpark appraisals can be done right before selling a business or around the time you plan to exit.
The second form of price estimation is what you can affect. In fact, with the right strategies, you can make any ballpark appraisal much higher than it would be otherwise and maximize the price of your business when selling it.
8 Key Things To Focus on Before Selling Your Business
If you’re not sure what aspects you should prioritize, read on. There are eight things you can improve or focus on before selling your business to make it look more valuable to potential buyers and highlight its potential profitability in the future.
Revamp – and Upgrade – the Website/Business Materials
Before selling your business, you need to make it look fantastic. Specifically, you should revamp or upgrade your business website and any associated business materials, like marketing posters and even your business logo.
Why? First impressions matter a lot, especially when someone considers spending tens of thousands of dollars on a new business. If your website looks clean, professional, and easy to navigate, a potential buyer may be swayed to purchase your business more quickly.
The same goes when it comes to your business logo. A good logo does a lot to bolster brand awareness and maximize your business’s domination of its niche. Think about the Nike logo and how recognizable it is worldwide. The better your logo is, the better your business will subconsciously seem to potential buyers.
When designing or redesigning your logo, make sure to include visual elements that relate to your industry or niche and are clean, eye-catching, and easy to recognize, yet also very distinct. The more recognizable your logo is, the better it is for your consumers and your business’s future owners.
Extend the same philosophy to all other visual elements of your business, such as your employee handbook, business colors, and even the blog posts on your website. Improving your website and business materials will go a long way toward leaving a good first impression on a buyer, maximizing the asking price you can get for your company.
Make Sure Physical Facilities Look Great, Too
By the same token, you should work hard to ensure your business’s physical facilities look fantastic. Do more than a basic sweep of your store or warehouse; make sure the place looks spotless before a prospective buyer comes to inspect the premises personally.
Again, this shows that your business is worth the price you want to ask for it and can make your enterprise seem much more valuable than it would if your potential buyer showed up to a bunch of clutter and clunkiness.
Have Hard Numbers on Hand for Potential Buyers
To make sure you can ask for as much money as possible before selling your business, gather and organize some hard numbers to have on hand for potential buyers.
“Hard numbers” mean:
- Breakdowns of your profit margins, revenue, etc. If, for example, you had record-fast growth, highlighting this could lead you to make a more profitable exit.
- Explanations of all your costs and how costs could potentially be decreased in the future
- Profit projections for the future, etc.
Naturally, you should already have these numbers on hand so you can make wise business decisions. But if you don’t have this information ready, print it out and put it in a packet or folder for prospective buyers to flip through as you explain your business’s operations.
Not only does this show that you are a professional business owner, but it can subconsciously improve your business’s value. It also allows prospective buyers to make faster decisions, so you may be able to find the perfect buyer for your business more quickly.
Clean Up Your Books
Another good way to maximize your business’s price before selling it is to clean up your books. Note that you should be doing this already; sloppy books and bad accounting practices can come back to bite you in the future and make running your business harder than it needs to be. However, cleaning up your books and making sure your finances are easy to read is doubly important when getting ready to sell your company.
For example, if you have 30 days to pay an invoice because you use net-30 credit accounts to pay for supplies or raw materials, it’s a good idea to pay any outstanding accounts or debts before an appraiser or potential buyer comes to look at your books.
Similarly, if you have any outstanding invoices for clients, try to collect those invoices before a buyer looks at your books. Doing so will also make your profits appear higher than they might normally be during a typical billing cycle when you aren’t rushed.
The more accurate you can make your numbers for a potential buyer, the better. Cleaning up your books shows that you run your business like a tight ship and allows prospective buyers to analyze your business’s performance and feel more confident about their buying decision.
If you don’t know how to clean up your books, or if you’ve recently switched accountants, hire a CPA to do it for you. This will cost a bit of money but don’t underestimate the impact stellar, well-organized books can have on a business investor. In fact, some investors may refuse to purchase your company even if they really like it if your books seem sketchy or poorly organized.
Ramp Up Profitability
Of course, ramping up the profitability of your business before selling it is a good idea. Whether through aggressive marketing campaigns, launching a new product, or doubling down on customer outreach efforts, getting your revenue numbers as high as possible is a time-honored strategy when it comes to maximizing the value of your business before selling it.
Do everything you can to get those revenue numbers up ASAP. If you can showcase better revenue numbers over the last few months or weeks before selling your business, you’ll be able to value it much more highly to potential investors.
Double Down on Recurring Revenue Streams
To really ramp up profitability and make your business more valuable before selling it, try to double down on recurring revenue streams like subscriptions or agreements to purchase your products. If you already have a subscription-based business, you should be set – just try to get as many new subscriptions as possible.
If you don’t run a subscription-based business, try to get some by offering loyalty programs, recurring purchase deals with discounts on long-term agreements, and more. Investors love signs of recurring revenue since it means they can count on profits for at least a short while after buying your business. Thus, recurring revenue streams are some of the best tools you can use to bolster your retail or eCommerce business’s value before exiting.
Diversify Revenue Streams
Similarly, do your best to diversify your business’s revenue streams in your last months of running it. Diverse revenue streams protect your business from market risk and volatility.
For instance, say that you run a software as a service or SaaS business and want to price that SaaS business fairly. If you have ten major clients making recurring subscriptions and filling your business’s coffers, it won’t be as much of an issue if one of the clients decides to switch to a competing business. Comparatively, if you only have two major clients, one of those clients leaving represents a potential 50% decrease in revenue.
Try to reach out to new clients and customers and diversify your revenue streams as much as possible. You may be able to do this by producing new products and services.
Cultivate and Keep a Talented Workforce
Your business is only as valuable as its employees. With that in mind, try to keep your most talented workers on board until the sale date. Business buyers don’t want to immediately have to hire top-tier talent after purchasing a new business. They want to know if the ship is ready to sail, so to speak.
If your business is successful already, you should have a roster of excellent employees on the payroll. However, try not to announce your exit to every one of them. Doing so could cause those rockstar employees to jump ship with you rather than stick around for the new boss.
If there will be a few departures along with you, try to set up suitable candidates for the new owner. Put this information in the above-mentioned packet or breakdown of your business’s numbers. Anything you can do to make the transition easier on their part will make them more likely to buy your business for the price you have in mind.
What To Do After Selling Your Business?
Once you’ve convinced a prospective buyer to purchase your business for the price you had in mind since the beginning, you have another big decision to make: how to use the money you just made.
If you are young or at the beginning of your entrepreneurial career, you have many options. You can put that money into another business venture you’ve had cooking in the back of your brain for a while. Or you can put that money toward your college education if you want to pursue a degree or another credential.
Alternatively, you can invest your money toward your retirement fund by putting it in a 401(k) or IRA account. There are other investments you should consider as well. For example, buying cryptocurrency is a good way to make some money if you are comfortable with a bit of market volatility.
Whatever you choose to do after selling your business, congratulate yourself. You’ve done the hard work of successfully building up and running a business, then selling it for a great price. You’ve won!
As you can see, maximizing the price of your business when selling is contingent on preparation, making your business look as good as possible, and highlighting what makes it succeed in its industry. If you can do all that, you’ll be able to charge a high yet fair price for your business and walk away with a ton of cash for your next venture or retirement fund.