For many businesses planning a sale, valuation is a source of major disappointment. After all, value is in the eye of the beholder, and you must convince a buyer that your company is a worthy investment. Buyers are inherently risk-averse, which immediately creates a conflict of interest. A little preparation can greatly increase value. Here are the four strategies you need to embrace today.
Build a Strong Management Team
Your company must be able to operate without you, and that depends on a strong management team. This demonstrates to buyers that your company is not excessively owner dependent, and that it will be ready to go on day one. Back away from any micromanaging tendencies, and start building a strong management team that can run the company when you’re no longer at the helm.
Build Recurring Revenue Streams
Recurring revenue builds certainty, and is a key reason buyers prefer established companies. Try strengthening your client portfolio, and attracting new clients wherever possible. You must be able to show that your revenue isn’t a one-off, does not show dramatic annual fluctuations, and tends to grow. This helps the buyer envision a bright, lucrative future rather than an uncertain one.
Consider an Enticing Payback Period
The buyer who purchases your company essentially gets its earnings, but they can only enjoy them after the payback period. Shorter payback periods are more alluring to buyers. American buyers are often more aggressive, expecting to be paid back within 3 to 4 years, compared to 7 to 10 years in Europe. Position your company such that it s strong enough to offer an attractive and realistic forecast for the payback period.
Get Your Financials in Order
Investors care about numbers—not promises. The right financials provide proof of your company’s value, and highlight areas for potential growth. They show a well-run company with good records and efficient management. With enough time, you can outsource a CFO to implement strong financial controls that can improve cash flow, streamline processes, and reduce expenses.
When due diligence begins, the buyers will absolutely request financial statements. Getting them ready now prepares you for the intensive process of due diligence.
If you're hoping to sell your company for the highest possible value, don’t delay putting it on the market until you’re sick of running it and it’s bleeding money. Buyers want to invest in their future, and to feel like they’re getting a low-risk deal. If you want a high sale price, that’s what you need to give them.
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