July 19th, 2011 David Finkel (Taxloopholes.com Advisor)
The most important question you can ask yourself is this: “What can I do today to prepare to sell my business two to three years from now ”
Building on what I taught two weeks ago on our advanced webinar on designing your business exit strategy, here are three concrete steps to follow as you prepare now to sell later.
Step 1: Determine what your business is currently worth.
How do you find out what your business is currently worth?
You can look to industry or association sources for the most common valuation methods for your type of business.
You can hire a valuation firm, work with an investment banker, or even hire a CPA experienced in your industry and type of business.
Even more important is understanding how companies in your industry and business category are valued by the market. What formula is most commonly used? What is the current range of business multipliers and how can you command the top end of that range? Find out!
Step 2: Do a “buyer’s audit.”
Put yourself in the shoes of a potential buyer and take a hard, long look at your business.
Which elements give it value in an outsider’s eyes? Is it your customer list? I.P. that you own? Your market share? Your physical location? The talent on your team? Or something else?
What major risks do you see that scare you?
What are the most attractive parts of buying this specific business versus one of its competitors?
What are the least attractive parts of buying it?
If you could change only three things to make it more attractive as an acquisition, what three specific things would you change over the coming 12 months?
Step 3: Mitigate risks and enhance value.
Once you’ve identified key risks and specific elements that create value, take preemptive action to lessen the buyer’s risks and enhance your business’s value.
The more you mitigate risks and enhance value in the eyes of a future buyer, the more your company will be worth when you sell it.
I hope these ideas sparked your thinking about your business.