Sell your business for more by nailing valuation

As a small business owner, you have invested your time, money, and energy into building your company from the ground up. You have put in the hard work, made countless sacrifices, and now, you may be considering the possible merger and acquisition, i.e., the future sale of your business. This, the future merger and acquisition of your business, is more than just a transaction, is is what attorneys refer to as your "Business Owner Succession Plan" or "BOSS." A well-executed BOSS increases the likelihood of the an offer at a price will not only finance your exit strategy, it ensures the future of the business, its employees, and even the customers who made it all happen.

This article defines terms used in the process of a merger or acquisition, describes the ways a business is valued and lays out seven ways to increase your small business's curb appeal to a potential buyer.

Terminology

You likely have heard the terms "merger" and "aquisition." How do these terms apply to a simple sale of a small business? The answer depends on the size of your business and the potential buyers. Let's go over some terminology.

A merger and acquisition (M&A) is a business strategy where two companies combine their operations through various transactions, such as a merger or acquisition, to create a stronger and more competitive entity.

A merger refers to the combining of two or more companies to form a single new entity, where both companies cease to exist as separate entities. In a merger, shareholders from both companies typically receive shares in the new, combined entity.

An acquisition, on the other hand, occurs when one company buys another company and absorbs its operations, assets, and liabilities. In this case, the acquiring company remains intact and the acquired company ceases to exist as a separate entity.

Mergers and acquisitions are often pursued to achieve strategic objectives such as increased market share, diversification of products or services, access to new markets or technologies, and cost savings through economies of scale. M&A can also help companies respond to changes in the industry landscape or adapt to new market conditions.

The process of M&A involves several steps, including identifying potential targets, conducting due diligence, negotiating terms and pricing, obtaining regulatory approval, and integrating the operations and systems of the two companies. M&A transactions can be complex and involve significant risks, so it is important to have a well-planned strategy and seek professional guidance throughout the process. Clearly, a "Mom and Pop" store will not need to worry about M&A. However, the mentality of these transactions still apply. A small business is simply worth more if it can market the six factors described in this article

Another phrase that is relevant is "Business Owner Succession Plan ("BOSS"). A business owner succession plan is a comprehensive strategy that outlines how a business will transition from the current owner to the next generation or a new owner. It is a step-by-step plan that addresses all aspects of the transition process, including financial, legal, and operational matters.

What goes into a fair valuation of a business?

Business valuation is based on several factors in three broad categories: financial, operational, and strategic.

Financial factors include the financial performance of the business, including revenue, profitability, and cash flow. This includes a review of financial statements such as balance sheets, income statements, and cash flow statements, as well as an analysis of key financial ratios such as profit margins, return on investment, and debt-to-equity ratios. A thorough appraisal will also consider future revenue growth projections and potential costs or liabilities that may impact the valuation of the business.

Operational factors include the structure of the business, its workforce, operations, and supply chain. This includes assessing the quality of the management team, the efficiency of the production or service delivery processes, and the company's reputation in the market. It also includes reviewing any intellectual property, patents, or trademarks that the business may own, as well as any regulatory compliance issues or legal disputes that may affect its valuation.

Strategic factors include the industry dynamics, market trends, and competitive landscape of the business. This includes assessing the business's position in the market and its potential for growth and expansion. It also includes considering any synergies that may exist between the business and the acquiring company, as well as any strategic advantages that the acquisition may provide.

In addition to these broad categories, there are several other factors that may be considered in a business appraisal, depending on the specific circumstances of the acquisition. For example, if the business being appraised is a franchise, the appraisal may include a review of the franchise agreement and any associated fees or royalties. Similarly, if the business is heavily reliant on one or a few key customers or suppliers, this may impact its valuation.

How to increase the value of your business for a future sale

There are seven ways you can increase the sale price of your business.

Improve Your Financials

The first step in increasing the value of your small business is to improve your financials. This means you should have or boost your company's financial statements. You should also, identify areas for improvement and effective ways to increase your revenue and decrease your expenses. Some areas to consider include reducing overhead costs, increasing profit margins, and developing new revenue streams.

Build a Strong Team

A business is only as strong as its team, so it's essential to build a strong, cohesive team that can help take your business to the next level. This means hiring talented employees, providing them with the resources and support they need to succeed, and developing a company culture that fosters innovation and collaboration.

Focus on Your Brand

Your brand is a critical component of your business, and it's essential to focus on building a strong, recognizable brand that resonates with your target audience. This means developing a consistent visual identity, creating a compelling brand story, and investing in marketing and advertising efforts that will help increase brand awareness and visibility.

Diversify Your Customer Base

One of the most significant risks to any small business is relying too heavily on a single customer or client. To increase the value of your business, it's essential to diversify your customer base, reaching out to new markets and expanding your offerings to attract new customers and clients.

Develop a Strong Online Presence

In today's digital age, having a strong online presence is essential for any business looking to increase its value. This means developing a user-friendly website, investing in search engine optimization (SEO) efforts to improve your website's visibility in search engine results, and creating compelling content that engages your target audience.

Invest in Your Infrastructure

Investing in your infrastructure is another critical step in increasing the value of your small business. This means upgrading your equipment and technology, developing more efficient processes and systems, and streamlining your operations to improve your bottom line and increase your business's overall value.

Foster Strategic Partnerships

Finally, fostering strategic partnerships can be an excellent way to increase the value of your small business. This means reaching out to other businesses in your industry or related industries to explore potential collaborations, joint ventures, or other mutually beneficial arrangements that can help expand your customer base, increase your revenue, and enhance your overall value. By focusing on improving your financials, building a strong team, developing a compelling brand, diversifying your customer base, developing a strong online presence, investing in your infrastructure, and fostering strategic partnerships, you can position your business for success and make it more attractive to potential buyers in the future.

Conclusion

Marketing a business for sale requires a comprehensive strategy that includes creating a compelling sales pitch, preparing a detailed information memorandum, utilizing online marketplaces, engaging a business broker, and networking within the industry. By taking a strategic and proactive approach to marketing, business owners can increase their chances of achieving a successful sale at the right price.

What would you do if, suddenly, you could not buy food. And you were afraid to sleep inside your home. Your neighbors decided to leave. A man who lived a block away committed suicide? How would you plan for the future if you just lost your job?

A swarm is what geologists call the grouping of earthquakes that have hit Guanica, Puerto Rico. Swarm is as good a name as any to describe over a thousand earthquakes in such a small area, many above 5.0 and at least two above 6.0. While there has not been a “big one”, a single massive quake to bring sudden and dramatic devastation, the constant month-long shaking of the homes, road, stores and spirits of Guanica has been even more cruel if not as renowned.

This tragedy is also headquartered in the one place on earth I intended to call home. I had spent impactful moments there. Playa Santa, just outside of Guanica, was the location of a lovely apartment with a view of the Caribbean. The landlord had my deposit in escrow and only my signature on a lease awaited. I had gone to a remote beach every other day to clean the plastic from it. I yelled at Playa Santan roosters that just had to wake at the playful satanic hour of 4 am. A lot had happened in such a short-time in Guanica and Playa Santa, the launch of this very podcast as one example, that I just had to tell the story of my time there and the friends who still struggle there.

As if on cue, however, the episode does succeed in laying out an investment idea. Really, this idea is an investment method. I first heard of it from a client about a year ago. I keep this method tucked away until the very last moments of the podcast.