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.