Selling a Company - Prep Tip #5 - Improving Financial Performance Improves Your Price
When selling a company, expect the buyer to examine your company's financial health.
Be prepared by looking for financial and performance ratios that point toward ways to improve your business's performance and profitability.
Act on what you discover.
Whatever improves the financial health and performance of your business also improves its selling price.
Obsolete and Unproductive = Gone Preparing your firm for sale can force you to take steps you perhaps should have taken long ago.
For example, sell or scrap obsolete or slow-moving inventory.
Compare product rework against industry averages and correct the causes of deficiencies.
Divest unproductive assets that can't be sold.
Write off receivables that are truly uncollectable.
Consider discontinuing or removing unrelated businesses.
For example, one of our recent clients ran a metal plating business and owned a microbrewery.
Although a fun hobby, it would be difficult to find a buyer for a metal plating business who had a similar interest in owning a microbrewery.
We advised him to sell the brewery to the current day-to-day manager.
Your business and its selling price may benefit from analyzing profitability of product and service lines: what doesn't pay doesn't stay.
External advisors and consultants can help with the analysis, and they may find other ways to increase profitability.
Examples would be determining if the market could support a product price increase or whether you could bundle them with others and raise prices on the total package.
Improve Cash Flow You can improve cash flow by increasing revenue-perhaps by increasing prices, changing product bundles and related pricing, focusing marketing on proven ways to drive revenue, incentivizing and upgrading skills of salespeople, sponsoring sales promotions, and removing low-performers organization-wide.
Ask suppliers for more favorable terms.
Take advantage of cash discounts.
Wherever possible, accelerate your collections.
Renegotiating leases can improve cash flow, especially with assistance of a commission-based consultant.
Ignite Sales and Revenues It's a red flag if your business is dependent on you as its main salesman.
One way to increase revenue is to seek sales channels outside your business.
Strategic alliances can diversify sources of revenue and also can be a trial run of compatibility and value with a potential buyer.
Please be aware that it can take a year to get an effective alliance program going effectively.
Before selling your business may be the time to introduce new products, expand distribution channels, and enlarge your geographic presence.
Depending on your selling time frame, acquiring new business lines and entering new markets may also attract particular categories of buyers.
Doing so requires more lead time - anywhere between one and three years - and investment, however, so weigh return on investment carefully.
Diversify Your Customer and Supplier Base Another smart step to diversify your customer base, especially if you're dependent on a few customers.
Further, seek customers who offer non-cyclical demand to counter over-dependence on cyclical or seasonal customers.
A strong, diverse customer base radiates value and resilience that will pay off in the selling price of your business.
Being dependent on too few suppliers is also a weakness that may impact your selling price.
Address enhancement opportunities and deficiencies in your supply chain.
Expand the number of suppliers, especially critical ones.
Diversifying your customer and supplier base can take between one and three years, so plan accordingly.
That is not to say immediate changes can't happen or won't have impact.
But we all know it takes effort to find quality partners at either end of the chain.
Reduce Expenses When preparing your business for sale, examine every expense to root out waste.
Trim inessential expenses like entertainment and travel.
Review utility and telephone costs, preferably by hiring a commission-based auditor.
It may be worth appealing property taxes, renegotiating insurance coverage, and appealing workers' compensation ratings.
Consider converting leased and financed assets to owned assets.
A concentrated effort could take three months.
If you haven't been using a budgeting process, now is the time to start.
Buyers will want to see them.
I invite you to use these ideas as you start the journey to sell a business.
Be prepared by looking for financial and performance ratios that point toward ways to improve your business's performance and profitability.
Act on what you discover.
Whatever improves the financial health and performance of your business also improves its selling price.
Obsolete and Unproductive = Gone Preparing your firm for sale can force you to take steps you perhaps should have taken long ago.
For example, sell or scrap obsolete or slow-moving inventory.
Compare product rework against industry averages and correct the causes of deficiencies.
Divest unproductive assets that can't be sold.
Write off receivables that are truly uncollectable.
Consider discontinuing or removing unrelated businesses.
For example, one of our recent clients ran a metal plating business and owned a microbrewery.
Although a fun hobby, it would be difficult to find a buyer for a metal plating business who had a similar interest in owning a microbrewery.
We advised him to sell the brewery to the current day-to-day manager.
Your business and its selling price may benefit from analyzing profitability of product and service lines: what doesn't pay doesn't stay.
External advisors and consultants can help with the analysis, and they may find other ways to increase profitability.
Examples would be determining if the market could support a product price increase or whether you could bundle them with others and raise prices on the total package.
Improve Cash Flow You can improve cash flow by increasing revenue-perhaps by increasing prices, changing product bundles and related pricing, focusing marketing on proven ways to drive revenue, incentivizing and upgrading skills of salespeople, sponsoring sales promotions, and removing low-performers organization-wide.
Ask suppliers for more favorable terms.
Take advantage of cash discounts.
Wherever possible, accelerate your collections.
Renegotiating leases can improve cash flow, especially with assistance of a commission-based consultant.
Ignite Sales and Revenues It's a red flag if your business is dependent on you as its main salesman.
One way to increase revenue is to seek sales channels outside your business.
Strategic alliances can diversify sources of revenue and also can be a trial run of compatibility and value with a potential buyer.
Please be aware that it can take a year to get an effective alliance program going effectively.
Before selling your business may be the time to introduce new products, expand distribution channels, and enlarge your geographic presence.
Depending on your selling time frame, acquiring new business lines and entering new markets may also attract particular categories of buyers.
Doing so requires more lead time - anywhere between one and three years - and investment, however, so weigh return on investment carefully.
Diversify Your Customer and Supplier Base Another smart step to diversify your customer base, especially if you're dependent on a few customers.
Further, seek customers who offer non-cyclical demand to counter over-dependence on cyclical or seasonal customers.
A strong, diverse customer base radiates value and resilience that will pay off in the selling price of your business.
Being dependent on too few suppliers is also a weakness that may impact your selling price.
Address enhancement opportunities and deficiencies in your supply chain.
Expand the number of suppliers, especially critical ones.
Diversifying your customer and supplier base can take between one and three years, so plan accordingly.
That is not to say immediate changes can't happen or won't have impact.
But we all know it takes effort to find quality partners at either end of the chain.
Reduce Expenses When preparing your business for sale, examine every expense to root out waste.
Trim inessential expenses like entertainment and travel.
Review utility and telephone costs, preferably by hiring a commission-based auditor.
It may be worth appealing property taxes, renegotiating insurance coverage, and appealing workers' compensation ratings.
Consider converting leased and financed assets to owned assets.
A concentrated effort could take three months.
If you haven't been using a budgeting process, now is the time to start.
Buyers will want to see them.
I invite you to use these ideas as you start the journey to sell a business.