3 Ways to Grow Your Business Before You Sell It
If you have been thinking about selling your business, you have probably done extensive research on how to sell business and how to sell it at the best price. You may have come across many concepts, webcasts, seminars, how-to books and so much more. One thing most people forget is that to groom your business for a good sale, you have to get back to the basics. The naked truth is this; there are only 3 methods you can use to increase the value of your business.
Increase your customer base
This is a no brainer. If you want to sell business at double its actual cost, you need to entice buyers with the potential of explosive growth. You can only do this if you have a huge client base. To do this, you need to be in contact with the old customers and start reaching out to new customers. This is where extensive advertising comes in. You will need to answer three important questions:
- Who really needs my product/ service?
- How much can my customers afford?
- How do I reach potential customers?
Answering the three questions will make market research easier. Never sell business before you do your research. You need to identify prospective clients and the best way to reach them. Research will help you know what to say, how to say and to whom. The more people you convince to consider your brand the more customers you will have.
Increase purchase frequency
Another way to grow your business is to increase the frequency of purchase. Again, advertising will come in handy. Second, you will need to make it easy for existing customers to do business with you. Taking your business online will be great. Other strategies you can use include giving additional customer value to build loyalty. You should also make your products more superior to those of your competitors. By doing this, your value will increase and it will be easy to sell business at a good profit.
Increase number of units sold
You increase the number of units sold by increasing your client base and the frequency of purchase. Learning how to add more value to your products can also help increase the total number of units you sell. A value-add benefit will do wonders in increasing the number of units sold. Start by understanding how your clients interpret, define as well as quantify your product and service value.
Generally speaking, to grow spontaneously before you sell business, you will need to start by understanding your customers. You need to do market research to understand how your clients are responding to your products, listen to what they are saying about you and work on the flaws.
The above points will help increase value before you sell business. Once you have done that or if you don’t have the capability to do so before you sell your business, hire good business brokers. They have handled numerous business sale deals and they will advise you accordingly and help sell your business at the best price. Avoid handling the transaction on your own.
How to Determine the Value of Your Business
If you are thinking of selling your business, the most important thing to do is find the right value for it. You may be more interested in getting rid of it but to sell business at a loss will definitely haunt you. On the other hand, regardless of how big the profit margin you want to make, if you overprice your business, finding a buyer will be difficult. It is this reason that makes valuing a business critical.
How much you sell business will depend on a number of factors. The main factors range from the business’ current state of the economy to your balance sheet. We shall focus mainly on the top three business valuation methods you can use to get the right value.
Just as the name implies, in this method, the value will be determined by looking at all your business assets. The business valuation expert will total up all the investments in your business. In asset-based approaches, there are two approaches that can be used:
- Going concern approach: this is an approach where all the business’ net balance sheet value is listed then the value of liabilities subtracted from the total.
- Liquidation approach: this is determined by looking at the total net cash that would be received if all the business’ assets were to be sold and the liabilities paid off.
Earning value approaches
This is another valuation method you can use if you plan to sell business. Focus is on the business’ ability to produce wealth in the future. When doing this, a business broker San Diego will mostly focus on Capitalizing Past Earning. The valuator will consider the past earnings of the business, normalize them with the usual expenses or revenue then multiply the figure with expected cash flows by the capitalization factor.
Another earning value approach used in business valuation is the discounted future earnings. To get value before you sell business, you focus on the average of the predicted future earnings. This figure is then divided by capitalization factor.
Market value approach
The third method that can be used to value a business is the market value approach. Before you sell business, you might hear the business brokers say that your business is as valuable as what the market is willing to pay. In this approach, the value of your business will be determined by looking at the value of similar businesses that were sold recently. The downside to this method is that it only works well where there are similar multiple businesses that were sold recently and at the right value.
Of the three methods, the earning value approach is the most common. However, before you sell business, avoid valuing your firm on your own. Hire the right help. You should start by finding the best business broker San Diego. He will guide you through the sale process and relieve you off most of the burden as you sell business. Another important person you should consider working with is a real estate lawyer. He will help with the legal part.
Mistakes Entrepreneurs Make When Trying to Sell Business
It is not easy to sell business. There is a lot that goes into the process and if you are not careful, you might end up selling at a loss or not finding anybody to buy your firm. To avoid such outcomes, you need to start by hiring a good business broker San Diego. In addition to that, if you plan to sell business, it is critical that you educate yourself on how the whole thing works. In this post, we will focus mainly on the top mistakes business owners make when selling their companies.
Overpricing the business
This is the top mistake that business owners make. It is a common mistake among the people who want to sell business for the first time. A fact you should take note of is if you overprice your business, finding a buyer will be difficult. To avoid this mistake, work hand in hand with a good business valuation expert. He will help value your business and advice you on better ways to increase its value.
Thinking the term sheet is a binding offer
As you sell business, a prospective buyer will give you a non-binding letter with intent or a term sheet. After signing this document, you agree to give the prospective buyer the exclusives about your business. This means you will tell him facts you would not feature in an advert, the kind that may drive the value of your business down. Therefore, whenever you get an offer, do not be in a hurry to cash the check as there is still a lot that needs to be done before you close the deal.
Not creating competition for the company
If you have sold a house before, then you know you only get the best deal when there is a bidding war. The case is the same when you sell business. The key to getting many offers for your firm is to advertise the sale extensively. You need to enlist the help of business brokers. Their primary objective is to create the competitive tension for your company by getting more buyers to make offer.
Not striving to increase business value
To sell business at a profit, you need to work hard to increase its value. Work hard to clear business’ debts and increase your customer base. What this will do is increase the value of your company and you will be able to sell at a good price. Running luxuries through the business will not do you any good.
Hiding behind the lawyer
Another common mistake people make as they sell business is that of getting their attorneys to do their dirty work. Using your lawyers to market the business for you can at times cause buyers to grow cold feet. Instead of letting your lawyers do everything, take the wheel and use them just as consultants.
There are many more mistakes people make as they sell business. Hiring a reputable business broker San Diego will help you keep away from most of those negative practices. The broker has handled numerous deals before and he will advise you accordingly.
Principles to Help Increase Value of Your Business before Sale
On a daily basis, the goal of business owners is to increase the value of their firms. If you are thinking of selling your business, the first thing you should do is understand how the value of a business is calculated. This knowledge will help focus on the right areas and increase the value fast. Even so, never handle the sale without the involvement of a good business broker San Diego. His knowledge and experience will help sell business at the best possible price.
Why strive to increase value of your business?
Long before people setup their own business, they usually have two objectives in mind; to get rich and to find a work-life balance. With that in mind, focusing more on building the value of your business will help achieve both goals. You will, however, be better placed with the advice of a business broker San Diego if you want to build business value to sell at a profit.
Statistically speaking, it has been found that approximately 80% of people whose net worth is more than $5 million are the entrepreneurs who started a business, groomed it then sold it. The key, therefore, to achieving your financial goals (whether you want to sell business or just live on the profits) is to work hard to build a valuable business.
How is valuation done?
Technically speaking, the actual value of a business is the total of all its present value of its future cash flows. The business valuation expert will calculate the present value by taking into account the total cash flow the company can generate into the future. There are many methods used to value a business. It is critical that you seek advice from a business broker San Diego if you are handling the sale for the first time. The broker will help find the best valuation experts and also enable you identify the key areas of focus.
Areas to focus on
To increase the value of your company, there are three main areas you should focus on before you sell business.
- Free cash flow
If your business is able to generate more and consistent free cash flows, it will definitely command a high value. The business broker San Diego will have no trouble finding you the buyers willing to pay top-dollar for your company. To achieve high cash flow, focus more on the activities that drive high profit margins. You should also invest in lead generation to ensure a steady stream of revenue.
- Rate of the risk or return
If there are two businesses with the same cash flow, the business with the least amount of risk is definitely more valuable. Your efforts should therefore be directed to reducing rate of risk. To assess risk in your business, put yourself in the buyer’s shoes. If you were the buyer, what would you identify as a risk factor?
Timing is everything. The business broker San Diego will let you know when it is best to sell business. The best time is when there are many potential acquirers in the market and there is availability of capital and the economic environment is in favor of your business. Beware of what is happening around you.
Steps to Increasing Value of Your Business
There are many reasons why you would want to sell business. You may be considering the option because you want to venture into a different field or you may be considering a sale to get rid of a business because you can no longer manage it. At times, you just want to sell business because that has always been your goal since the beginning. Whatever is the reason, the most important thing is to know how to increase the value of your business.
The fact that you own a business means you are an entrepreneur. Your goal has always been to make profit. With that said, you do not want to sell business for less than it is worth. Long before you hire a business broker San Diego to help with the sale, you need to learn how to increase or improve the value of your business. A simple method to use is that of understanding what the business valuation experts look for when valuing a business. You can then improve on those areas before you sell business. There are five suggestions you can consider to increase the value of your company.
If you can prove that you get repeat customers regularly, the value of your business will skyrocket. This is because as you sell business, buyers will have more confidence in your firm and its potential to sustain itself and grow long into the future. Focus on an area that has more consumable components.
Revenue growth rate
The revenue growth rate is more important than the profit growth when it comes to driving the value of a business. To increase your growth, you can focus more on advertising your products and services. The more people know about your firm, the more sales you will make and hence the faster your growth rate will be. This is the key reason why most experts recommend you sell business when it is at its pick. It is at this time that you will be able to make the most profit.
Positive cash flow
If your business takes in money before it spends it, buyers will be willing to pay more for it. This is because nobody wants to run a business that operates on debts. Try and get rid of all liabilities before you sell business. This will significantly increase its value.
Hire a second in command
A right hand person is often a sign of business continuity. This is because even when you are not around, your second-in-command will continue running your business successfully. You can either hire a new individual or groom one of your staffs to be your right hand person.
Set a better trap
A business that is unique will sell better than one whose products face a lot of competition in the market. Therefore, if you offer unique services and provide products that face less competition on the market, you will be able to sell business at a good price and without any problem.
A lot has to be done before you sell business. A good business broker San Diego will give you more tips on increasing the value of your company.