Florida Acquisitions — Getting the Most for Your Business
March 14, 2019
Florida Acquisitions – Getting the Most for Your Business
If you’re selling your business, then you probably don’t need us to tell you that you should do everything you can (within decency and reason, of course) to raise its value prior to closing. However, you might be surprised to know that there’s more to valuing a business than by just looking at its profits. Below we’re going to get into a few strategies that you can use to get the most out of the sale as you possibly can.
Offer a Strategic Plan
This isn’t going to be as comprehensive as your original business plan. Instead, think of it as a guidebook or checklist for the new owner. Make sure to include strategies to increase investment in areas with high ROI and how to decrease investments where the ROI is lower. If you do it right, this framework will give the Buyer confidence in the longevity and profitability of the business. Buyers will be much more open to paying a higher price for businesses that they believe to be solid, long-term investments. After all, no one wants to waste their hard-earned cash on an operation that could go under at any time!
Focus on the Quality of Earnings – Not Just Profits
For those not in the know, a business’s “quality of earnings” refers to the sustainability of a business’s income. This is more of a measure of profits alone. As we mentioned above, Buyers place tremendous value on businesses that can stand the test of time and aren’t simply financial bubbles ready to pop. One popular avenue for increasing the quality of your business’s earnings is to diversify its revenue. This helps protect your business from going under in case a particular market dries up. Staying on top of your buyer contracts will go a long way, too.
Trim Unnecessary Costs
There is a big difference between cutting costs and enforcing outright austerity measures. Your goal here is to reduce waste, not to transform into the office bean-counter! Overheads have a way of accumulating over time, but that doesn’t mean that younger businesses aren’t guilty of loading themselves down with gratuitous expenses, too.
Keep in mind, however, that much of a business’s components and personnel are deeply dependent upon one another, often in ways that aren’t immediately obvious or even apparent on your bottom line. Cutting costs in an area that will leave employees so unhappy that they leave the business, for instance, can end up costing you more on hiring and training replacements.
Encourage Employee Buy-Ins
While far too many bosses seem oblivious to their value, Buyers typically pay a lot of attention to a business’s employees. This doesn’t just save them money with new hires but helps retain the information and experience that only skilled employees have. Employee buy-ins signal to the buyer that the business really is a sustainable, worthwhile investment. A fully-functioning operation is far more attractive of a purchase than an unstaffed warehouse stuffed full of old equipment!
Establish Your Processes
The “internal machinery” of your business is of the utmost importance to a Buyer. This is demonstrated by having detailed, all-inclusive processes for each “task” in your business. They exist to standardize the operations of a business, minimize mistakes, and to fill in the gaps for new or forgetful employees. Not only do established processes make it easier to take over the business after the transition but are indicative of a well thought out and viable business model. If your operation is run on the fly, then Buyers are more likely to see that as a giant red flag than as proof of your entrepreneurial genius.
Take a Step Back
If you’ve been acting as the face of the business that you’re now looking to sell, then you might want to take a step or two back while you’re getting the transaction in order. The value that the owner brings to a business, no matter how great, rarely translates as something that’s worth the expense for the Buyer. They are purchasing your business and its employees – not you and your vision.
A good way to objectively gauge your involvement is to examine how much of your business is brought in by your own personal relationships and charm. If more than a third of the business is carried on your shoulders, then chances are that you’re responsible for most of its value. The good news, however, is that most of your contracts and relationships can be passed on to someone else in management that you can trust to act as your successor.
Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website, www.FLPatelLaw.com, or calling 727-279-5037.
Tyler Thompson is a second generation St. Petersburgian with a passion for reading and writing. In 2018 he finally made his way to FL Patel Law PLLC where he has found a home for himself as Project Manager. He is an unapologetic dog person who enjoys spending what free time he has with his friends and family.
About us and this blog
This our small business law blog. We provide information about Florida business law, LLC's, C-Corporations, S-Corporations, contracts, and provide resources for small businesses.
If you have a question about starting your business, want to discuss a contract, or would like counsel on a specific matter please do not hesitate to contact us. We provide a free 30 minute consultation for all new clients.