Many of our clients contact us because they are interested in selling their business. Here are 4 ways to improve the potential sales price.
1) Recurring and diverse revenue stream
Astute potential buyers will review many factors when investigating your revenues, but the following factors are certain to weigh in your favor. Long-term or repeating contracts add certainty and take away some of the potential buyer’s risk. Likewise, companies with a broad and diverse customer base will appear to have more stable operations and will be less susceptible to market fluctuations and/or the whims of a particular customer. Contrast this to a company that has 80 percent of revenues with one customer – this company could be out of business quickly if that customer changes its mind.
2) Accurate Financial Metrics
You should maintain, and have the ability to present, accurate historical financial data. This data should include an income statement (P&L) and balance sheet, and may include historical cash flows, key performance indicators (KPIs), a summary of how your largest expenses relate to revenues, and/or an analysis of your key sales and customer data. Being able to show that your financial house is in order, and then presenting this data in a way that shows positive trending, will certainly increase the attractiveness of your business.
3) Intellectual property or other proprietary assets
Intellectual property, such as a patent, is valuable because IP and patents are expensive and time-consuming to secure, may block out competition, and may serve as a key to securing future revenues. Other proprietary assets, such as computer systems, software, or key processes, could provide similar valuation benefits. These assets all may help you create, or improve upon, your competitive advantage(s) in your industry and may help avoid legal challenges down the line.
4) Proper HR documentation
Having a history of solid H.R. and employee documentation may improve your company’s value. Such documentation may include, but is not limited to, non-competition agreements, non-disclosure agreements, and employee contracts. If you have, for example, key employees, or proprietary assets such as those referenced above, they are more valuable if the potential buyer knows your people and assets will remain in place for the foreseeable future. And, importantly, an H.R. department that is organized and consistent presents less potential future legal liability for a potential buyer.
For assistance with improving the value of your business, contact Fournier Legal Services now for a free consultation and planning session.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.