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6 Simple Things To Increase Business Value Before Offering It For Sale

Posted By: Timothy Cunha JD: Business Broker, SF Bay Area

How do you value a small business before putting it on the market? Tim Cunha, JD offers 6 items all business owners should consider. Other advisors and business brokers also weigh in on this very important topic especially when over 70% of small businesses never end up selling (due to pricing).

Tags: business valuation, selling a business

Here is a list of six 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 company. Read through the fine print and ensure you're not scrambling at the last minute to seek permission from your landlord to sell.

#2. Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.

#3. Stop using your company 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 company in the eyes of a buyer by much more than the value of the perks.

#4. Protect your gross margin. Often, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when acquirers see 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.

#5. If you're fortunate to have formal contracts with your customers, make sure your customer contracts include a "survivor clause" stipulating that the obligations of the contract "survive" the change of ownership of your company. That way, your customers can't use the sale of your company to wiggle out of their commitments to your business. Have a lawyer review the language to ensure it has teeth in your jurisdiction.

#6. Consult an experienced business broker about (a) the current fair market value of your business, and (b) a "SWOT" (strengths, weaknesses, opportunities, and threats) analysis to identify any shortcomings you need to overcome before taking your business to market.


A great way to build value in a store before putting it on the market is to make sure it's clean and bright. A potential seller should replace any lights that aren't working, give the store a good sweep and mop, and remove any unnecessary signage from the windows. Curb appeal is important and shows pride of ownership.

If there is anything that a owner doesn't want to include in the sale, such as an expensive television, it's best to remove and replace it before buyers start looking at the business, because once they see it, they'll want it along with the business.

Pricing the business to sell in the beginning is important, because the first month of when the business is on the market is the honeymoon period, when there will be a surge of activity, and so the longer the business is on the market, typically the less activity there is from buyers.



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