If you look at reasons why deals fail to close, there’s one that tops the list. By “tops” I don’t mean in the top three or five. We’re talking the number one reason businesses don’t sell:
When you’re faced with a “value gap” — i.e. the current value of your business isn’t what the market is willing to pay — what do you do? It may be that you’ll need to put some big fixes in place in order to hit your target valuation: Reduce customer concentration, beef up profit margins, hire a sales team.
Oftentimes, however, a few tweaks in the right places can make a noticeable difference in business value. Here are eight simple things that require little capital — of the time, money and human varieties — yet go a long way towards improving the overall value and sellability of your business.
Freshen Up Your Website
You only get one chance to make a first impression and when it comes to your business, your website is it. The first thing I do when I talk to business owners is look at their website. Not surprisingly, a buyer will do the same thing.
Thanks to the speed of change on the Internet, websites start looking stale and outdated after about two years. In addition to visual appeal and easy navigation, here are some basics that your company website should clearly communicate:
- A cohesive and attractive brand, including three to five key messages.
- What makes your product/service different from the competition.
- Your company’s core values.
- The story of how your business and its product/service came to be.
- The customers and industries your business serves.
- Who is in charge (upper management), and what the rest of your team looks like.
- How customers buy your product.
- How and where to contact your business.
It doesn’t cost an arm and a leg to redesign your website, and the return on investment is well worth the effort. The redesign process is also a good time to audit other areas of your online marketing strategy, like social media exposure, content creation, and search engine optimization.
Document Your Processes
One of the things that makes a business more sellable is having well-documented processes in place. In addition to making your business run smoother, having good documentation makes your business stand out to buyers. It’s more than just polish: It shows that you care about continuity, and have put both thought and action behind building a sale-ready business.
Examples of documentation might include: Org chart, job descriptions, employee handbook, safety procedures, branding guidelines, pricing of jobs or projects, marketing calendar and inventory management…just to name a few.
If these things have been on your housekeeping list for a while, go ahead and tackle them. It should eliminate some headaches in the short-term, and will definitely payoff when it comes time to sell your business.
Adjust Your Salary
One area of your business that buyers will examine closely is shareholder compensation. It’s not that they care all that much about what you pay yourself. What they really want to know is what it would cost to hire someone to replace you.
This holds true for family members employed in the business, as well. The general rule is to pay everyone, including shareholders, a market salary for the job they do. Don’t underpay yourself. And if you want excess compensation, do that through bonuses, dividends or draws. (Talk to your CPA about this, especially if your business is a C-corporation.)
Paying everyone an appropriate salary will make your financials look cleaner, speed up due diligence, and give buyers confidence.
Get Customer Feedback
I always ask business owners if they track customer satisfaction. The answer is almost always no.
While you may not want to bother your customers by asking them to fill out a survey, it’s pretty simple to ask two or three critical questions via Email using a tool like Survey Monkey. If that seems like too much trouble, how about asking your customers one question? The Net Promoter Score is a widely used and respected tool that asks one simple thing: how likely would someone be to recommend your company?
Collecting customer feedback may seem like an unnecessary step at your business, but put yourself in a buyer’s shoes. How do they know your customers are happy? When you sell your business you need to show, not just tell. It’s one thing to tell a buyer that you have satisfied customers who rave about your product or service. It’s another to be able to prove it.
Build Your Email List
This is another task that may seem like one more administrative headache. Even if you don’t feel the need to use Email marketing at your business, there’s a good chance that a savvy buyer will. There’s plenty of value in being able to say that you have a list of thousands of current, past and prospective customers to target with relevant marketing messages.
After your website, Email is the most effective digital marketing channel available. And it’s practically free to use, making this hack a no-brainer.
Outsource Payroll & Accounting
If you’re still doing the books at your business, stop. Now. There is no area of your business that will be picked apart as mercilessly by a buyer than your financials. And with good reason; they’re making a substantial investment by purchasing your business and want to uncover any and all possible risk.
While you need to be intimately familiar with your numbers, a professional should be putting your financial statements together on at least a monthly basis. Payroll in particular is an area that can be rife with hidden issues if a pro isn’t handling it. (I learned this lesson myself the hard way.)
Having your financial information managed by a good CPA firm is an investment. Simply preventing a costly payroll mistake could pay the firm’s fee many times over. There are even virtual bookkeeping services — like Bench.co — that make outsourcing affordable to almost any size business.
Clean Up Your Financial Statements
Go over every account on your Profit & Loss Statement and look for areas to improve, clarify or clean up. Have you broken out revenue sources under Income, or is all lumped together at the top of your P&L? Are there operating expenses that should be recategorized to hit the Balance Sheet, or go into direct costs? Are there a bunch of personal and “miscellaneous” expenses being run through the business? If you’re serious about increasing the value of your business, then it’s time to stop lowering taxable net income and start showing a clear story of profitability.
Get A Business Valuation
If you haven’t had your business valued it is an affordable, relatively painless and worthwhile exercise. You don’t need to pay for a certified valuation; just find a good M&A advisor or business broker who offers a pre-sale valuation report. A business valuation will help you see your business through a buyer’s eyes, and identify things you can do — big and small — to increase the value of your business.
I haven’t met many entrepreneurs who don’t want their business to be worth more to a buyer. Regardless of what stage you’re at in your plans for an eventual sale or exit, put together a value-enhancing punch list and knock off the low-hanging fruit at your business today.
If you’d like to learn more about getting a business valuation, contact us at Allan Taylor & Company. Let’s get the conversation started!
Author: Barbara Taylor
Barbara is co-founder of Allan Taylor & Co. and a former New York Times blogger. She has been a small-business owner since 2003. Barbara lives with her husband, Chris, and their two sons in Northwest Arkansas.