If you’re planning to sell your business in the next few years, increasing revenue isn’t the only way to improve its value.
Buyers also care about risk, predictability and how easily the business can continue operating after the current owner leaves.
Here are ten areas worth thinking about before going to market.
1. Reduce reliance on the owner
If every major decision, customer relationship and piece of knowledge sits with you, a buyer may see risk.
Building a management team and transferring responsibility can make the business much easier to acquire.
2. Build recurring revenue
Predictable revenue gives buyers greater confidence about future performance.
Long-term contracts, subscriptions, repeat customers and other recurring revenue models can therefore be particularly attractive.
3. Reduce customer concentration
A business where one customer represents 40% of revenue carries a very different risk from one with hundreds of customers.
Where possible, build a broader customer base so the loss of one relationship would not materially affect the business.
4. Improve your margins
Revenue growth is good. Profitable revenue growth is better.
Look at pricing, supplier costs and operational efficiency. Small improvements in sustainable EBITDA can have a meaningful impact on valuation when earnings are being multiplied.
5. Strengthen the management team
A good management team demonstrates that the business can operate successfully without the founder.
Buyers are not just acquiring financial performance. They are acquiring the people and infrastructure needed to continue delivering it.
6. Get your financial reporting in order
Good businesses can look less attractive when their financial information is poor.
Clear monthly management accounts, sensible budgets and an accurate understanding of revenue, margins and profitability make it easier for buyers to assess the business.
7. Demonstrate consistent growth
Buyers generally want to understand where future growth will come from.
A history of steady growth, supported by a credible plan for what comes next, can make the investment case much stronger.
8. Secure important relationships
If key customers or suppliers operate without contracts, consider whether those relationships should be formalised.
Greater visibility over future revenue and supply arrangements can reduce uncertainty for a buyer.
9. Deal with problems before a buyer finds them
An unresolved legal dispute, tax issue, expired contract or regulatory problem isn’t going to disappear because you’re selling the business.
Identify potential issues early and, where possible, resolve them before starting a sale process.
10. Leave some opportunity for the buyer
You don’t have to complete every growth initiative before selling.
A buyer wants to see what they can do with the business too.
New locations, products, services, customer groups or geographic markets can all form part of the future opportunity.
The strongest position can be a business with a proven track record and a clear next chapter still ahead of it.
Start before you’re ready to sell
Many of the things that make a business more valuable take time.
You can’t build a management team, diversify your customer base or create a strong record of recurring revenue a month before a sale.
If you think you may sell within the next two or three years, now is a good time to look at the business through a buyer’s eyes.
Ask yourself a simple question:
What would make someone want to pay more for this business, and what would currently make them hesitate?
The answers can give you a useful plan for what to work on before going to market.