Ways to increase the value of your business

By Thomas Charla
Thomas Charla is director of business markets at MassMutual.
Posted on Oct 2, 2018

You’ve poured your heart and soul into your business. So when it comes time to sell, you want to ensure you get the most value out of all the hard work you’ve put into your operation.

To accomplish that, it’s crucial to make a prospective buyer comfortable during the sale process and help them become confident in the company’s future success.

The buyer wants to know that they can step in without too many issues greeting them on their first day. In other words, they want to know that the business can run itself. By focusing on just a few areas before you sell, you may be able increase the value of your business while giving the new owner the best chance of success. Even if you’re not considering a sale today, it’s a smart move to get your business in shape for tomorrow.

Develop a long term strategic plan

Potential buyers need to see there is future growth potential for the business. Create a long term strategic plan that maps out for them your vision for the company, its growth potential, and how you intend to implement that plan. A new owner may ignore your business plan completely once they step into your shoes, but its existence can prove valuable. (Find business planning tools here)

A big part of this long-term plan should address cash flow. The more money your business brings in, the more perceived value your company will have.

To maximize the cash flow coming into the company, look for new sources of income (existing customers are always a great place to start) and identify ways to minimize debts and obligations, and eliminate inefficiencies and wasteful spending. Build your prospective buyer’s confidence the same way you built your business — with consistent, recurring revenue based on a solid business plan for steady, manageable growth.

Keep in mind the new owner will most likely use a loan to buy your company, and they’ll need a healthy cash flow on day one to start repaying it. Strong cash flow can make your business more desirable to potential buyers.

Run a tight ship

Prospective buyers don’t want to spend a lot of time worrying about day-to-day operations. They want a well-oiled machine. The more seamless your business runs, the more comfortable they will be with the purchase — and the more they may pay.

Increase the value of your business by running it like a tight ship. Some best practices for your to-do list are:

  • Standardize and document processes.
  • Keep financial records current.
  • Manage and track systems and procedures.
  • And make sure your employees are following every step.

An operational area you may want to put additional effort behind is customer service. Your customers are your company’s life blood and your buyer knows that. They’ll need to be confident that customers won’t start leaving once ownership changes. Taking the steps now to ensure your customers have the support they need — through service level agreements, loyalty programs, or other means — and helping to make sure they will still be around after you are gone can be priceless to any buyer.

From customer inquiries to inventory review to monthly marketing efforts, organize your operations so the new owner can take over the reins as smoothly as possible.

Build a strong management team

You know how to drive your business forward, but you can’t be the only one who knows how to do so. It’s important to transfer critical information to managers and key staff members so they can keep business moving once you relinquish the keys.

But building a strong and experienced management team is just the start. A buyer needs to know that the accumulated knowledge of its most important team members (itself a valuable commodity) won’t walk out the door after purchase. Many factors contribute to a company’s ability to retain key employees, among them culture, opportunity, and compensation. ( Learn more: 3 points for employee retention )

Creating an attractive benefit program as part of their compensation package is a great way to help ensure your key employees stay on board during the transition, while providing the new owner a tool to keep them in place for the long term. The availability of voluntary or employer-paid products such as life insurance or disability income insurance are sought after benefits that many employees won’t want to give up. Additionally, "golden handcuff" programs like non-qualified deferred compensation or executive bonus plans using life insurance are a carrot at your disposal.

Quick gut check: If you find yourself often saying, “This place couldn’t run without me,” the amount a buyer is willing to pay for your business will most likely reflect that.

You deserve to get the most value out of your business

Taking some simple steps now as you prepare to sell your business can pay big dividends later — namely an increased purchase price. Yet improvements like these won’t happen overnight. It’s an ongoing process. Even if your sale date is years or decades away, it’s important to make standardization a standard practice.

Streamline your documents and systems. Keep financial records up to date. Step away from the daily grind by setting up a strong management team or advisory council that knows your business inside and out.

You may also want to consider talking to a financial advisor for personalized help and guidance. They can help you develop a succession plan and put programs in place to retain and reward key employees as new ownership takes over.

Whether you measure success by dollars and cents or sweat and tears, make sure you get the most out of your time and effort when the time comes to sell your business.

Learn more from MassMutual….

Selling your business: Planning for the proceeds

Knowing the value of your business

 

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Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) (Springfield, MA 01111-0001) and its subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company (Enfield, CT 06082).

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.