Top Ten Ways to Maximize
Sale Value of Your Business
by Scott Roberts
Most experts agree, the three most important life - impacting decisions
a business owner will ever make are: whether, where and how to direct their
education; whether and when to have children; and how and when to sell their
The first two are typically personal decisions, made early in life. The
third, selling the business, is typically put off until an owner has already
built a successful company and is contemplating retirement. That can be a
Indeed, the best time to begin thinking about how and when to sell your
business is at its inception. Still, it's never too late to get started.
Wherever you may be in the life cycle of your business, there are some specific
things you can do right now to help maximize the actual sales value of your
company down the road - however long that road may be.
- Commit your goals and personal exit strategy to writing.
Why did you get into business, and why do you want out? If money were no
object, what would you do with your time? To whom would you sell your business
(Third party? Family? Key management?). These are among the critical questions
that will guide the entire sale process. Answering them - and more important,
committing them to writing - will help guide a stable, predictable sales
process based on your goal set that is easily communicated to your professional
team. That, in turn, will help avoid mid-course changes that can be expensive
- Analyze your personal net worth.
Once you truly understand your personal goals, calculate your overall asset
allocation, including a rough valuation of your business. This step - understanding
how your business impacts what you have and what you want - will be the
most important factor in determining when to sell, which, in turn, impacts
risk factors, personal income needs and other elements related to sales
- Time your business cycle with your exit strategy.
Anticipate your company's Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA) cycles, gross profit, fixed overhead, etc. Managing
your capacity, having disciplined spending, and having a targeted EBITDA
level will help give you a clear path to your exit event.
- Align your entity structure with your exit strategy.
Every business owner is aware of the impact of taxes on their business.
Few realize that the best time to mitigate the tax impact on a sale is years
before it occurs - and the longer the better. The challenge will be to separate
operations from appreciating assets, such as real estate, intellectual property
and investments. Other factors, such as corporate structure (S-corp, C-corp,
LLC, etc.) will also be important decisions that will impact your "net cash"
from your exit event.
- Seek scalability.
Highest values derive from companies with a diversified customer base, a
repeatable income stream and multiple products that can be further developed.
The greater the capacity of your business, the higher the value it holds
for potential buyers.
- Increase strategic value.
If there are significant barriers to entry in your business, so much the
better. Take advantage of patent protection, if applicable. Geographic diversification
helps shield potential buyers from local economic downturns or other hurdles.
Long term contracts with customers also reduce risk, and therefore represent
- Prepare the business to succeed without you at the helm.
A company without standardized processes and procedures, or without a strong
management team in place, will have a tougher time succeeding after you're
out of the picture. As valuable as you've been to your company, helping
it run without you (unless you plan to stick around in some capacity) will
actually increase its value.
- Time for upward financial trends.
Not surprisingly, upward sales and margin trends are key factors in company
valuation (2000 was not the best year for many owners to consider selling.
This year, however, appears to be a very good time). Be sure your company's
hard assets (machinery, vehicles, etc.) are in good shape. Whatever a buyer
has to repair or replace will detract from your company's sale value.
- Practice good "housekeeping."
It may go without saying, but do your best to avoid or quickly dispense
with litigation. Less obvious may be the value of having strong employment
contracts, non-competes and job descriptions. Quality control mechanisms
and "clean" and consistent financial reports are also extremely important
to potential buyers.
Of course, there are literally scores of pieces in the intricate jigsaw
puzzle that must be carefully assembled to reveal your own personal vision
of success. More often than you might think, the highest possible dollar value
for the company is just one piece - not the full picture.
So, perhaps the 10th, and most important thing you can do right now to help
you get started on that puzzle is to seek independent, confidential counsel;
a trusted, experienced advisor who knows all the pieces, from brokerage and
legal to M&A, CPA and financial planning.
Those who begin trying to assemble the puzzle with any single piece - or
worse, on their own, without the benefit of detached perspective - may find
their vision for a successful sale looking more like a Dali nightmare than
a Michelangelo masterpiece.
Scott Roberts, CPA is Managing Partner of Mergers & Acquisitions for The
Parrott Partnership, a Portland, OR-based, full-service business consulting
and CPA firm specializing in independent, confidential exit strategy planning
for owners and executives of middle-market Northwest companies. Contact him
at (503) 684-0100, or visit: www.parrottpartnership.com
for additional information.
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