Exitwise

How To Maximize The Value of Your Business

You're a business owner. You've spent your time, effort, and sacrificed in countless ways to get your company to this point. As you think about selling your company, you know that it is likely worth more than the sum of its parts. But how do you go about determining what the value of each part is, and more importantly, what should you be doing to ensure that every piece is setting you up for exit success? Many business owners and entrepreneurs don't know where to start - this article will show you how to organize your thinking, help you to better set your expectations of value, and prepare you and your business to ensure you "maximize your exit" when it comes time to sell.

What Are My Company Assets Worth?

A popular place to begin creating a business valuation is to understand the assets that make up your company, and begin to assign relative value to each. Below is a quick list of items you should consider in this phase of your exit plan:

  • Conduct a comprehensive inventory of all company assets, including physical assets (such as equipment and buildings), intangible assets (such as intellectual property and brand value), and financial assets (such as cash and investments).

  • Obtain professional appraisals and valuations of key assets, such as real estate and intellectual property.

  • Review financial statements and reports to identify assets that generate revenue or contribute to the company's overall value.

  • Analyze industry trends and market conditions to determine the value of the company's assets in relation to its competitors.

  • Consider the cost of replacing or repairing assets, as well as the potential return on investment (ROI) that each asset provides.

  • Develop a long-term asset management plan that prioritizes asset maintenance, upgrades, replacement, and any relevant depreciation rates.


Are My Financial Organized?

Accurate financial statements are essential when selling any business entity (e.g., sole proprietorship, corporation). Unfortunately, many small businesses do not keep adequate records because they think they don’t need them.

When it comes to maximizing the value of your business, one thing is clear: organization is key. You need a way to track all assets, liabilities, revenue and expenses on a regular basis. Even if you don't plan on selling your business anytime soon, keeping track of these things will help ensure that everything runs smoothly—and that you're not missing out on opportunities for growth or expansion.

The first step in getting organized is determining who's going to manage the heavy lifting associated with properly organizing your corporate finances. How much time each week or month you can dedicate to accounting tasks - do you have individuals in your organization that you can depend on to properly position your company for exit - or should you lean on a trusted external team of accounting experts with a deep history in preparing companies for sale? Once you've determined your path, stick to the plan - this is one of the most critical aspects of successfully selling your business - no ball can be dropped.

Do I Have The Right Experts On My Team?

Depending on the size of your company, consulting with a industry-specific Business Broker, M&A Advisor, or Investment Banker can also be an ideal way to maximize the value of your business. To find a M&A Advisor, look for someone who is experienced in your industry and has worked on many deals similar to yours.

A qualified broker, advisor, or banker will be able to guide you through all aspects of selling your business so that you get the maximum amount possible while avoiding any issues along the way. However, they can be just as valuable in the early days of consideration - identifying areas of need early on give you the time to address anything that may become a problem well before you begin the sales process.

You may also want to consider hiring an accountant with previous M&A-related experience, as well as various other professionals such as lawyers or wealth advisers within your industry who can help with specific tasks like drafting contracts or reviewing leases.


Do I Have The Right Valuation Expectations?

One of the biggest mistakes you can make when selling your business is setting unrealistic expectations for yourself and your business. That's why we encourage founders and entrepreneurs to educate themselves on industry valuations throughout their entrepreneurial journey - the more informed you are in your industry, the more likely you can plan for and influence the ultimate price that you sell your business for. In our view, there are three important aspects of valuation education to educate:

  1. Researching similar businesses in both size and scope, as well as their recent sale prices. There are a variety of sources to leverage online, specific to industry, public vs private, and at different price points.

  2. Working with your industry-specific M&A Advisor to determine price based on recent transaction multiples. Well-informed business brokers, M&A advisors, and Investment Bankers have access to recent transaction details that are likely to not be available in the public domain. Partnering with the right advisor to ensure you're getting detailed and relevant data is one of your most important tasks in your valuation journey

  3. How much money during the transaction to ensure you can live the next phase of your life. Too many founders misunderstand how much money they need to live out their dreams - and realize too late that there was a mismatch between the money they received and what they truly needed.


Do I Have A Strong Management Team Ready To Take The Reins After I Sell?

Selling a business is a challenging task, and one that requires careful planning. To maximize the value of your business, it's important to first determine how to run it without you - many buyers will not be willing to maximize a sale price if a smooth transition plan is not in place for your organization.

Ask yourself, how would the business run with me out of the picture? What are some strategies for maximizing efficiency and productivity? Below we list several key elements that any founder should consider when developing a succession plan post-acquisition:

  1. Identify key positions: The first step is to identify the key positions within the company and the skills and experience required to fill them. This will help to ensure that the right people are in the right roles and that there are qualified candidates for future leadership positions - we like saying, "putting the right people in the right seats of the bus".

  2. Develop talent: To ensure a smooth transition, it's important to develop and train employees who have the potential to move into leadership positions. Providing opportunities for professional development and mentoring can help to build a pipeline of future leaders.

  3. Create a clear process: The succession planning process should be well-defined and transparent. It's important to establish clear criteria for selecting candidates, as well as a timeline for succession planning activities.

  4. Communicate with stakeholders: Succession planning should be communicated to all stakeholders, including shareholders, board members, and employees. It's important to ensure that everyone understands the process and the reasons for it.

  5. Test the plan: Finally, it's important to test the succession plan to ensure that it works as intended. Conducting mock scenarios or simulations can help to identify any gaps in the plan and allow for adjustments to be made as necessary.

Final Thoughts

The process of selling your business can be complicated and time-consuming, but it doesn’t have to be scary. By taking the time to prepare your business for sale and get organized, you can make the process easier on yourself—and put more money in your pocket. Remember: The more prepared you are when it comes time for a potential buyer to take a look around, the better off everyone will be, and the more likely you are able to celebrate an amazing exit from your business.

Author
Brian Dukes

Brian graduated from Michigan Technological University with a BS in Mechanical Engineering and as Captain of the Men's Basketball Team. After a four-year stint at Deloitte Consulting, Brian returned to school to get his MBA at the University of Michigan. Brian went on to join his first startup, a Ford Motor Company Joint Venture, and cofound a technology and digital marketing services agency. Through those experiences, Brian embraced the opportunity to provide M&A education and support to his fellow business owners as they navigated their own entrepreneurial journeys.

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