Very few business owners get their companies valued. Therefore, when the time comes for them to sell it, it is already too late to make any changes that would have increased the firm’s value.
Most enterprising people value their companies based on past projects and accomplishment. Of course, this is a normal valuation strategy, and it works well. However, if you are looking to make more money from your business when you sell it, there are a number of things you need to do. Read on to find out more:
1. Future Potential
The first thing you need to do is sell the future potential of your firm. Most buyers judge a business based on how much it can fetch them, and how they can turn it round and benefit from its contacts and business model, among others. In fact, very few of them pay much attention to your past performance. After all, they are buying the company with the intention of using it to make money.
Knowing how potential buyers think will enable you set your tone accordingly. You will, therefore, be able to sell them on how much potential your firm really has. At the end of the day, showing buyers the present and future potential of your business will, more than anything else, convince them to buy it.
2. Think Strategically
As you learn how to sell your business, focus more on the strategic and less on the mundane everyday tasks. Think about how it would perform in a different market or location. If you have been successful in certain markets, potential buyers will want to find out whether the business can be scaled in another market. On the same line, learn how to convince potential buyers about how great the cross selling opportunities for your business really are.
3. Answer Questions
No one buys anything without asking questions, less so a company. The potential buyer is ready to put in a lot of money to get your business. Therefore, they are likely to ask many questions touching on various aspects of the firm. If you cannot answer these questions convincingly, it is unlikely that you will be able to make them part with a tidy sum in exchange for the business.
For instance, the potential buyer might want to know about the growth potential of the firm. Simply by making a case for your potential business growth, you might convince the buyer to spend even more money to get control and ownership over the company.
This is actually why companies like Whatsapp and Uber have great valuations. Uber is currently valued at over $50B even though it only makes revenues of between $400M and $500M.
Simply by demonstrating that your business does not have any growth limits, you will be able to prove to the potential buyer that your firm is really valuable. As a result, they will pay more for it.
4. Understand Cash Flow
Most potential buyers will want to know and understand the cash flow through your company. They will ask questions and request for evidence about how cash comes in, how it is spent, and what is left over at the end of the day. Additionally, they will need information about the business expenses required to run the firm (such as paying wages and bills, restocking supplies, and taking care of everyday tasks).
As the seller, you should also remember that the buyer will need to invest twice to get the business up and running. First, they will pay you to take control of the company. Secondly, they will need to spend money as working capital to finance the company. a lot of money is required to run the day-to-day operations of a firm.
Therefore, you need to understand the cash flow required to run your business. Find out everything you can about even the minutes of details, and where each coin goes. To increase the value of your company (both realistically and in the eyes of potential investors), cut down on how much money is required to run your company.
Businesses that require a lot of money are typically unattractive to potential buyers. Remember, the buyer will be thinking that the less they have to spend running the firm, the more the amount that will be left in their pockets. Consequently, you must convince them that your business does not require a lot of money to run and/or generates more than enough money for daily business expenses to be of consequence in the grand scheme of things.
5. Deal with Business Debts
Most businesses have debtors and creditors. If you plan to sell your business, therefore, start collecting all the receivables that are in your books. Similarly, try to extend your payables. You want to delay your payments until the business starts generating more money than is going outside. This way, your books will look better from the perspective of a potential buyer.
Remember, too, that there is difference between the actual money that is in the bank and our P/L report. Think about how you can improve both the working capital and the cash flow. Then, take the steps required to have more capital and cash flow.
If you typically send out invoices, find ways to collect your dues faster. For instance, if your current terms run for 45 days, reduce them to 30 or 15 days and you will have greater cash flow and fewer bad debts. Similarly, start charging bigger deposits.
In the same way, slow down the pact at which you pay your bills. Ask your suppliers to give you extensions so that you pay them later. With regards to credit cards, find out whether you can use the 10 to 15 days of business float that your cards provide.
In the long run, the faster you get paid by your debtors and the slower you pay your creditors, the better your overall cash flow positioning will look – at least in the books. This will raise your business value and enable you get more money when you sell the firm.