5 Little Things That Make A Big Difference To The Value Of Your Business

With the Sochi Olympic Games taking place this month, it’s interesting to reflect back on some of the big events of the 2010 Winter Olympic Games in Vancouver, Canada.

In the Men’s Downhill race at Whistler, for example, the winning time of 1:54:31 was posted by Didier Défago of Switzerland. The time among medallists was the closest in Olympic history, and while Mario Scheiber of Austria posted a time of 1:54:52 – just two tenths of a second slower than Défago – he finished out of the medals in fourth place.

In ski racing, one fifth of a second can be lost in the tiniest of miscalculations.  And when it comes to selling your business, markets can be equally cruel. Get everything right, and you can successfully sell your business for a premium. Misjudge a couple of minor details and a buyer can walk, leaving you with nothing.

Here is a list of five little details to get right before you put your business on the market:

  1. Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your business. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell.
  1. Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.
  1. Stop using your business as an ATM.   Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your business in the eyes of a buyer by much more than the value of the perks.
  1. Protect your gross margin. Often in the lead up to being listed for sale, businesses grow by chasing low-margin business. You tell yourself you need top-line growth, but when a buyer sees your growth has come at the expense of your gross margin, they will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun.
  1. If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” ensures that the obligations of the contract “survive” the change of ownership of your business. That way, your customers can’t use the sale of your business to wiggle out of their commitments to your business. Have your lawyer check your key customer contracts to make sure you don’t slip up on this issue.

Like competing in the Olympics, selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner. Fumble your preparation, and you could end up out of the medals.