M&A Advisors’ Secrets to Increasing Business Value Before a Sale

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Selling your business is your life’s biggest earning event. You want to make it as profitable as possible without overcharging to the point that no one is willing to pay. However, that can be difficult. You can’t just arbitrarily increase the price. 

M&A advisors have a multitude of secret strategies they use to increase a business’s true value before approaching buyers, and today, we’re going to share those secrets with you. 

Here are the top tips on how to increase business value before sale

1: Eliminate Debt

The vast majority of businesses have debts. It’s practically impossible to do business without debt, and in some ways, it’s actually unhealthy to not have debt. It means you’re not leveraging your options and making the most of available opportunities. 

However, debts do impact the value of your business.

How to increase business value before sale - eliminate debt

A good place to start when increasing your business’s value is to eliminate as much debt as possible. Small debts you nearly have paid off, major debts that look bad, and similar forms of debt should be mitigated or eliminated before you start approaching buyers

The more debt you get rid of, the less leverage your buyer has to lower your asking price. This can take time, though. So, you should start implementing this strategy as soon as you decide it’s almost time to look at selling. 

For example, if you decide you’re getting older, and you want to retire at 60 to enjoy the fruit of all your life’s labor, and you’re 55, start focusing on debt elimination immediately. That will give you four or five years to get rid of debt while you’re organizing your records before you ever approach a broker or buyer. 

2: Maximize Profit Margins

It’s just common sense. Businesses that are performing well sell for more than businesses that aren’t. It’s like the difference between buying a used car that was just fully repaired and buying one that has 20 different problems you’ll have to deal with after you buy it.

You pay a premium for the better option, but you get a better product

You want to ensure that your business is as profitable as possible before you make your exit. 

This can mean striking deals with suppliers to reduce production costs, leveraging new tech such as an online store to broaden your customer base, speeding up your production process to take better advantage of your product’s demand, etc. 

Whatever you can do that will boost your product’s profit margins will increase the value of your business

However, you don’t want to do anything that ultimately damages the business. For example, you don’t want to suddenly cut a lot of corners and put out a low-quality product.

Sure, you might get a temporary boost, but as soon as your customers realize what happened, the business will take a dive. It’s also unethical to time that transition in a way that leaves the buyer with the consequences, and legal action might be taken to rectify such an action. 

Make sure any profit-driving measures you take are ethical and maintain your company’s reputation. 

3: Cut the Fat

Every business has things that cost them more than they’re worth. Maybe you have superfluous positions, product lines that aren’t selling, special events that aren’t providing any sort of benefit, etc.

Cutting those non-beneficial expenses out, or cutting the fat, can boost the value of your business in a variety of ways. You might increase your profit margin, increase production, or otherwise get rid of liabilities that were dropping your business’s value.

Hopefully, there isn’t too much fat to cut, or you’ve been operating inefficiently for years. So, this might not be a tremendous boost. However, every bit counts. 

4: Renew Patents and Trademarks

One thing that the majority of M&A advisors won’t tell you is that very often, a buyer is mostly concerned with the intellectual property they’re inheriting, especially if you’re selling your business to a competitor or someone else in your industry. 

However, if that intellectual property is about to lose its legal protections anyway, that buyer might opt to simply wait it out. It’s important to maintain those crucial assets until you sell the company and transfer them to the buyer.

How to increase business value before sale - renew registered trademarks

Once they have control of them, it’s their job to maintain them, but this can help you increase your company’s value with the right buyer. 

5: Increase Your Reach

It’s not normal to start massive expansions, such as new locations, right before a sale, but you can still try to expand in reasonable ways. For example, you might want to build an online presence and get the infrastructure for international shipping of your products set up.

This greatly increases your business’s potential customer base, and it allows you to scale up productivity to all-new heights. With that, you gain more value. 

You can also invest more into your marketing and productivity capabilities to grow your pool of customers. The more business you’re doing, the better your company looks, and buyers will pay a premium for that. 

Of course, you’re not sticking around. So, you don’t want to spend tons of money on stuff that you’re not going to recoup with excess during the sale or have the time to recoup before going for a sale. 

6: Fix Productivity Problems

It’s rare that any company operates without a single productivity issue. Whether it’s an outdated IT system that forces your business to halt every time there’s a bandwidth problem or it’s a piece of production equipment that frequently wastes materials or shuts down production due to necessary repairs, it’s crucial to fix those issues. 

One of the best and most effective ways of increasing business value before a sale is simply maximizing your productivity because none of those issues are going to pass onto the buyer, and you can present the company in its best state possible. 

7: Develop a Niche Audience and Lead the Industry in it

This is a big one. In every form of business, you’ll constantly see the advice to capitalize on a niche. This means finding a very specific audience and focusing on that audience with your business. 

For example, let’s say you’re a hardware store owner. Are you just randomly selling tools? Well, you’re not maximizing your business’s value that way. Let’s look at two situations without naming any brands specifically. 

First, consider your local “DIY and budget” hardware store. They sell cheaper tools, and they market themselves to the average homeowner or people on a budget. They’re not wasting revenue trying to get mechanics or carpenters in the door. 

Then, you have your premium brand that costs 10x as much, but the tools are built to withstand decades of daily abuse. Their niche is the professional tradesman who needs that level of quality. 

Knowing where you’re at in that range of niches and then catering to your niche audience in a way that makes you stand out above the competition is pivotal. You’ll make more sales at optimal price points, open various marketing avenues, and more that increases the productivity of your company and its profit margins. 

In the end, you increase your company’s value in two ways. 

First, it will perform better. So, it’s worth more in a tangible, identifiable amount. 

However, you also show that you have an advantage in a specific market with some brand loyalty backing you up. That isn’t something as tangible as making increasing profits 12 quarters in a row, but it is highly valuable, and good buyers will notice that. 

8: Focus on Healthy Relationships

If you go to sell your business, and you have suppliers dropping out, marketing agencies dropping you as a client, and practically all your relationships falling apart, the buyer isn’t going to be excited to pay a premium for your business. Those are all relationships they’ll have to repair or replace upon assuming ownership. 

So, an easy way to increase your company’s value is to make sure you have healthy professional business relationships.

You don’t need to be anyone’s best friend, but you should at least know that those B2B relationships are intact, and you can confidently present them to the buyer as an advantage instead of something that is on the brink of falling apart. 

9: Know Your Business’s Current Value

How are you going to focus on increasing your business’s value if you don’t even know what it’s worth now? 

Getting a solid understanding of exactly how much your business is currently worth will allow you to set goals that are achievable instead of just doing things at random.

You’ll also have a good idea of how much you can afford to spend on improvement strategies as you figure out how to improve your business’s value before the sale. 

The best way to do this is to hire a professional who can evaluate the business. This is something you’ll want to do when you sell it, anyway. This is just a preliminary check to see what you have to work with. 

Who knows? You might even be a lot better off than you thought, with little room for practical improvement, and in that case, you’ll be able to move right into the process of selling a business.

10: Understand the Way Businesses are Valued

This is key, but it doesn’t directly improve the value of your business. Instead, it gives you the tools you need to take action.

How to increase business value before sale - get an idea of how businesses are valued

There are various parts of the business, both tangible and non-tangible, that will be considered while evaluating it. If you know exactly what will be looked at, you can identify where you’re lacking, and you can focus your efforts on those specific areas.

This is a more targeted approach that allows you to preserve resources while still making a huge impact on your company’s value. 

It’s also a lot faster than simply using random methods and hoping something works. 

11: Choose the Right Buyer

The last tip on how to increase business value before the sale isn’t something you do before the selling process, but it does affect how much you can get for your business. 

Your business will be worth more or less depending on the buyer you choose. A ruthless investor looking to minimize his expenses and maximize his profits will likely try to lowball you, even if you can get the business sold faster that way.

A competitor who has had difficulty keeping up with you due to a patented product you manufacture will likely pay a premium just because they can get you out of the way and take control of that patent at the same time. 

So, even after you’ve maximized your company’s value by following the other tips we gave you, it’s important to cater your selling strategy to whatever type of buyer is going to pay the most in your situation

Why Implement These Tips? 

As we said earlier, you cannot just ask for arbitrary amounts when setting the price of your company. Every dollar you ask for needs to be necessitated by something that the company offers.

That’s where M&A advisors come in – we help you form a price and sell your business for maximum profits.

If structured with care, a business deal can often lead to Goodwill, which is every business owner’s aspiration in these situations.

Goodwill is a form of bonus payment that goes beyond that identifiable value but that’s offered by the buyer

Implementing these tips backs up your asking amount with provable items of value. Whether that includes a solid year of record revenue increases, a provable sense of customer loyalty, or just a lack of debt and a few high-value assets, these things give you the ability to ask for more without coming off as simply being an unrealistic seller.

Get Guidance Throughout the Process

We’ve highlighted some tips on how to increase business value before sale, but actually implementing them can be difficult.

You might have noticed that a lot of them have to do with understanding behind-the-scenes evaluation methods, finding the right methods to use at the right time, or enlisting third-party help. That all adds up, and there is a lot of room for mistakes to occur. 

That’s why it’s recommended to get guidance from someone like us – we will help you increase your business’ value and get the most out of your sale. 

In fact, we help middle-market businesses with the entire selling process. That means helping with boosting the business’s value before the sale, prepping the business for sale, finding a buyer, negotiating terms, and even setting up post-sale retirement plans so our clients can live their best lives once their business days are over. 
For start-to-finish help selling your business optimally, contact us today.

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