What Can You Get For Your Business?

Maybe you’ve only just started your business or are not ready to sell it just yet. But don’t you ever wonder how much you could get if you cashed out – or let someone else buy in? Could you afford that beachfront property in Hawaii you’ve been fantasizing about? Take those international trips you have been promising yourself? Or have the cash to allay your financial worries and build the business without a cloud of desperation hanging over you?

If so, you may want to consider putting your company through a valuation process. A valuation process may involve working with a business broker to determine its fair market value. Or, if your company has annual sales of less than $1million, you may be able to do some of it yourself (although be sure to get some guidance from competent professionals). Whether for investment or sale, once you know how much your company is worth, you can then factor that information into your exit strategy and personal life plans.

But if you’re not happy with the numbers you uncover – or they simply aren’t large enough to buy you that thoroughbred racing horse you’ve coveted – there are a few steps you can take to enhance your company’s valuation and strengthen your negotiating position with potential buyers:

• Put your financial house in order. No one gets any boost of confidence when seeing financial irregularities or problems. So do what you can to settle any claims, lawsuits, or debts. In particular, pay all back taxes and put the systems in place to make sure that you do not fall into arrears in the future. Do not play games with sales taxes, employee taxes or pension funds, as you will be inviting disaster.
• Clean up! Sloppy books will not enhance the price you can command for your business. Make them as transparent as possible. Consider getting rid of nonessential family members. And stop running your personal expenses through the business accounts (if you’re doing it). Few things shout “amateur” more than this. Also, sloppy premises can hurt the impression you make. Could you sell your home or apartment for the best price if it looked like a pigsty?
• Show off your “legs”. Buyers or investors want to know that your business has “legs,” that it’s a stable business that is not highly dependent on one key factor (e.g., you, a supplier, a customer, an asset). Can you demonstrate steady profits and predictable cash flow? How much does it cost you to deliver your product or service to your clients? Analyze your customer list so that you know how long your customers have been with you and how much each is likely to spend. Also evaluate your key suppliers. Who is easy/hard to replace?
• Have the best team possible in place. While you always want to know that you are working with those who are best for your business, it’s especially important to have a good team when you are thinking of selling or asking others to invest in your business. This is an appropriate time to get rid of underperformers, particularly those at a management and financial responsibility level in your company. And while ideally, you should have en employee manual at the outset, consider developing standard policies and practices so that employees know what duties and behaviors are expected of them.

  Finally, whether with your advisors or potential buyers or investors, be sure to address potential problem issues up front. Thorny issues can include: leases that need renegotiation, equipment to be replaced, pending litigation, key employee and customer retention, and outdated financials. Hiding unfavorable information is the surest way to destroy the trust of your potential buyer or investor (and possibly get the transaction rescinded for misrepresentation) – and say “aloha” to your dreams.