LUTZ BUSINESS INSIGHTS
8 Tips to Maximize Value in Your Business
RYAN MCGREGOR, LUTZ M&A MANAGER
We have compiled a list of tips that will be advantageous in helping you generate added value for your business. Implementing
these tactics will better prepare your business for success and a potential greater value:
TIP #1: DIVERSIFY YOUR CUSTOMER AND SUPPLIER BASE
It is important to understand the makeup of your customers to see if you have exposure related to concentration. If there is revenue concentration in your customer base (one customer generating 10% or more of revenue), there is a greater risk to recurring revenue. Typically more recurring revenue from a well-dispersed customer base is more valuable to a prospective buyer. If you have a large customer that will be hard to replace, this will typically reduce the amount buyers are willing to pay. If you are reliant on a specific supplier or suppliers that can’t be easily replaced then there tends to be a discount associated with this dependency.
TIP #2: MANAGEMENT ABILITY AND DEPTH
If a business is primarily reliant on a key employee to generate revenue then there is significant risk to a prospective buyer. If you are able to develop and train several employees so the business is less reliant on a key employee then you can create more value in the business.
TIP #3: KNOW YOUR COMPETITORS
Even though this is an uncontrollable factor it is important to understand your competition. Maximize what you do best and minimize the risk that is within your control. If you keep your customers happy they will be less likely to care about the competition. That being said, they might be the best information on competition since they are being solicited for their business. Try to keep an open dialogue with your customers to make sure you are aware of the changes going on in your industry.
TIP #4: STREAMLINE YOUR OPERATIONS
With today’s advances in technology and automation, a company’s systems and process chain require evolution. Owners that embrace change and adapt to more efficient and productive ways to operate their business will not only increase profits but allow for their business to grow and expand. This also adds to the perception of a well-run and organized business. On the other hand, buyers tend to pay less for businesses that need significant capital expenditures related to technology.
TIP #5: REDUCE NON-ESSENTIAL BUSINESS EXPENSES
Keeping business and personal expenses separate is the best policy. Small business owners tend to have non-essential expenses included in their financial statements. When preparing a business to sell, these expenses will need to be explained in order to add them back into the cash flow. Keeping these types of expenses separate is beneficial because you avoid buyer scrutiny and the perception of a less profitable business.
TIP #6: CONSIDER CPA PREPARED FINANCIALS
It would be wise to consider a Certified Public Accountant to prepare your annual financial statements. Studies have indicated that companies with audited or reviewed financials, or at least professionally managed books, tend to sell at a higher price than those not well maintained. If your business has revenues of $5 million or more, we recommend having a CPA prepare compiled financials at a minimum.
TIP #7: CONSIDER ENGAGING A BUSINESS TRANSITION (EXIT) PLANNING ADVISOR
Regardless of the age of the business owner or the owner’s business transition goal to sell to family, employees or an outside 3rd party, planning for the long-term will be a significant benefit for the owner.
TIP #8. CONSULT WITH A MERGERS AND ACQUISITIONS (M&A) ADVISOR
To get the best value for the sale of your business, you should consider hiring a mergers and acquisitions advisor. They will assist you through the entire process and will help make the transaction as simple for you as possible.
We hope this advice has been informative regarding certain tips to maximize the value in your business. If you have any questions regarding valuation, don’t hesitate to reach out to the Lutz M&A division.
ABOUT THE AUTHOR
RYAN MCGREGOR + CONSULTING DIRECTOR
Ryan McGregor is a Consulting Director at Lutz M&A with a combined 14 years of related experience. He specializes in business consulting, valuation, and sell-side advisory services.
AREAS OF FOCUS
- Mergers & Acquisitions
- Business Consulting
- Sell-Side Advisory Services
AFFILIATIONS AND CREDENTIALS
- Alliance of Merger & Acquisition Advisors, Member
- National Association of Certified Valuators and Analysts, Member
- Certified Merger & Acquisition Advisor
- Certified Valuation Analyst
- BSBA in Management, University of Nebraska, Kearney, NE
- Master of Investment Management and Financial Analysis, Creighton University, Omaha, NE
- Master’s in Business Administration, Creighton University, Omaha, NE
- Past volunteer for various local nonprofit organizations including: Juvenile Diabetes Research Foundation (JDRF), Habitat for Humanity, Red Cross and Open Door Mission
- Earnings Multiples for Small Business Valuation
- Succession Plans for Family-Owned Businesses: Why You Should Start Now
- Is Your Business Transferable?
- Exiting Your Business is Inevitable: Keys to a Successful Transition
- 8 Tips to Maximize Value in Your Business
- Mid-Market Buyer Groups
- Manage These Risks to Create More Value
- Current Market Trends for Main Street and Lower Middle Market Businesses
- Why Exit Planning Matters
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