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I believe that there are two types of entrepreneurs:

1) The owner who plans to keep their company in the family, often passing it down to children or a trusted protege.

2) The owner who envisions selling the business for a large profit to another entrepreneur or to a larger corporation.

I will focus on entrepreneur #2, the seller.

In order to sell your company at maximum profit, you have to provide a maximum value to the buyer. After all, who wants to spend a ton of money on a company with financial woes offering shady products labeled with a terrible brand?

While there may be a few rogue investors out there who might jump on board, chances are you won’t get even close to the offer you hope for.

What can you do now to add value to your business?

1) Take care of the finances. Hire a professional to audit your books for three years worth of accuracy. Audited financials are golden and can bring a quicker close to the sale with limited investigation.

2) Reposition your reputation as the owner to emphasize the reputation of the company. A brand can be worth more than the business itself! (See #18, Louis Vuitton - bottler of Moët champagne and Hennessy cognac, producer of designer fashion and luxury cosmetics… a brand worth more than giants like Honda, Ford, Dell, Pepsi, Sony, Nike, etc.)

3) Brainstorm new proprietary products or services that fulfill a need of your customers. Even if they are not released, the raw data for these new ideas could serve as extra incentive for a buyer.

4) Build extensive customer lists and operation manuals if you do not already. Customer data can be a goldmine for someone buying your company. Operation manuals ensure the next person will have an idea of how everything works.

5) If you contract anything, make sure that it is short-term and does not require your involvement once the sale is complete. If long-term contracts are already in place, make sure they are fully transferable to the next owner.

These steps take time to execute which is why a decision to sell should be made long before the actual sale takes place.

Bottom line: prospective buyers want to see profit and value. With a strong combination of both, you will get closer to selling for what you really think your business is worth.

Recommended Reading:

• Entreprenuer.com - Growing a Business to Sell
• Powerhomebiz.com - Selling Your Small Business
• About.com Small Business - Selling Your Business Nest Egg
• Business Info Zone - Adding Value to Your Business Before You Sell It

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3 Responses to “Adding Value to Your Business”

1. Betsy Jones says:
   

   I suggest that there is a third type of entrepreneur: one who has such solid processes in place that the business will run without him or her, freeing him from the day-to-day operations of the company while allowing him to keep drawing his desired salary. This model can provide an attractive option to owners who do not want to sell, or, as you suggest, add tremendous value when they do.

   Posted February 19th, 2006 @ 10:22 am
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2. Chris Brunner says:
   

   You make an excellent point, Betsy. A business could (and should) be run this way well into the owner’s retirement.

   However, I think the type of operation you speak of would fall into entprepreneur type #1 — one who will keep the business in a trusted circle of friends and/or family. Having solid processes in place will make the transition even easier once old age and poor health take hold.

   Posted February 19th, 2006 @ 10:58 am
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3. Betsy Jones says:
   

   Please allow me to clarify: the model I proposed can be used by business owners well before usual retirement age, old age or illness, starting as soon as a business owner establishes comprehensive processes that allow hands-free operation of the business.

   It can, of course, be used with either of the exit strategies you described, but also by entrepreneurs who want to be supported by the ongoing operations of a well-tuned business that keeps churning out their salaries even though they are no longer involved in the day-to-day operations of their business. I have seen that model used effectively by any number of business owners, including my own parents and some entrepreneurs who “retired” in their twenties.

   Posted February 19th, 2006 @ 11:26 am
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