There comes a time for many business owners, and small business owners in particular, when they begin to think about selling the business – and there are many savvy people out there like Larry Polhill who have made their careers out of recognizing the opportunity that this creates. Whether for retirement, to change career paths, or just because it is time for new challenges, business owners need to make sure that they get the biggest return possible on the years of hard work and energy spent on growing the business in the first place. In order to maximize the selling price of your business, here are some things to have in mind.
Update your business plan
It might be the case that the business plan you used to guide the growth of your business when you first started out hasn’t been formally updated in some time. It might be simply that you always had a clear idea of where you were going but haven’t formally laid it out in a few years. Or, it might be that you have actually accomplished everything you set out to do and are either just carrying on in the same old way, or are winging it as you move forward. For whatever reason, if you don’t have an explicitly laid out business plan, this is the first thing that you do in order to make your business more attractive to potential buyers. A clear thought process about the future of the business which takes into account different scenarios and also the competition is a valuable asset which should be valued in the price of your business.
Take the salary you deserve
It is natural that many small business owners might choose to pay themselves last, and moreover to undervalue their labor in order to improve the bottom line. What many people don’t appreciate is that the valuation of a business is often based on return on investment calculations rather than return on labor. This means that underpaying yourself may actually devalue your business from the perspective of a potential buyer. Do a survey of the market and be sure that you could hire your own replacement on the salary you are paying yourself!
Build a great team
Think about how nervous you would feel if you were contemplating purchasing a business if all of the institutional knowledge and experience was held by just a few key staff. If the success of the business moving forward depends on retaining those staff members, a potential buyer might consider that to be too risky. 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. A potential buyer must be confident that there is enough transferable knowledge to allow the business to carry on even if some staff decide not to remain.
These are just some of the things that you can consider as you look for ways to increase the value of your business in order to get a good return on the investment you made in getting it off the ground.