Four Steps to Prepare Your Business for Sale and Increase Its Valuation

Selling your business is a major event in your life, but it is quite surprising just how many business owners do put in the time and effort needed to maximize business valuation. After all, when you increase business valuation, you increase the sale price which means more money in your pocket. When you put up your business for sale, it is vital that you do your best to increase its value and eliminate issues that may hold down the price.

Here are four basic steps that you should take in properly evaluating, identifying, correcting, and augmenting your business so that it sells for the best price possible.

Step 1: Eliminate Obvious Red Flags

This means that you need to address outstanding issues that are associated with your company. Any such issue is a red flag to potential buyers and may even scare some away depending on their severity. Here are a few things you need to examine to see that your business is in order.

  • Clear, Accurate Ownership Documents & Title
  • All Patents and Licenses Current & Updated
  • Up to Date with Taxes & Collect All Debts
  • Proper Legal Structure for Your Business in Place
  • Abide by All Regulations, Licensing, and Solve All Compliance Violations
  • All Building Leases Good for at Least Five Years

By addressing these issues before putting up your business for sale, you can correct obvious flaws that will attract more buyers. If you do have issues that cannot be resolved, then you will need to have a plan of action for the new business owner, so they can handle such issues. This may affect the sale price of your business.

Step 2: Increase Business Valuation

Now that everything is ready for sale, here are a few tips that will help you maximize business valuation.

Raise Prices: If your business has been on a regular schedule of raising prices, continue to do so at the normal rate. You will need to do the proper evaluation before raising prices to ensure that it benefits your company’s profit margin. However, many buyers may view a price hike as an artificial means of boosting the value of your business, so you will need to be careful.

Cutting Expenses: Many buyers see this as a positive, especially if you are getting rid of unwanted expenses. Here are a few tips that can help;

  • Buy only what is needed to get you through the sale
  • Find the best vendors for the lowest prices
  • Do not hire additional employees, make the best of the ones you have
  • Determine Return on Investment (ROI) of each strategy and cut non-performers

Such changes can really help to maximize business valuation without having to make major changes. While more sales are always better, increasing the profit margin by cutting unwanted expenses is just about as good.

Step 3: Boost Tax Payments

It may seem counterintuitive, but instead of trying to reduce your tax bill to the minimum, you really want to pay more in taxes to demonstrate to buyers the overall value of your business. Of course, you’ll want to put reasonable limits, but boosting what you pay in taxes means that buyers who analyze different companies will see the value in the taxes that you pay.

Step 4: Where You See Yourself After the Sale

There are different reasons for putting up your business for sale, so it is important to plan to know what you want to do in the next year, five years, and so on. Perhaps you want to stay at your location or start traveling. You may want to work with the people who purchased your business, start up another business, or move on to other things.

It is important to stay around for at least long enough to help with the transition, that is one way to increase business valuation. This means that the buyer knows you’ll be around for a set period so that everything goes smoothly. You may have to sign a contract agreement during this time so that you are compensated for the work you are doing.

The more you maximize business valuation, the more money you will make and the easier the sale of your business will be.

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