Every owner can benefit by increasing their business value. After all, owners never know when they may receive an unexpected offer to sell. That’s right, it happens all of the time. There are many former executives and managers as well as private equity groups looking to acquire businesses in order to get a good return on their money. Even owners who plan to transition their businesses to insiders will benefit from increased value. The business needs to have ever-increasing cash flow in order to support a departing owner and provide a good living for those who will take over the business operation.

Here are 6 tips for increasing business value:

  • Reduce owner dependence – the business must be able to run without the daily involvement of the owner. Owners need to hire and retain key managers who are smart and can garner the respect of the employees
  • Increase revenue – owners must demonstrate that the business has growth potential or it will not be attractive to buyers or successors.  Having a written plan that outlines how the business will gain new customers or tackle new markets and then executing on the plan will go a long way toward proving that the business can grow with the right amount of capital and effort.
  • Show true profits – many owners suppress profits to avoid paying taxes but this decreases value.  Manipulating inventory value and running personal expenses through the business are two popular methods of reducing business profits.  Owners will need to “come clean” and show profits in order to decrease value.  Owners would be wise to research other ways to reduce income taxes that don’t require suppressing profits.
  • Reviewed financials – CPAs provide varying levels of assurance on business financials. We recommend that owners obtain an annual review to bolster the credibility of their financials which are always scrutinized closely when value is determined.
  • Professionalize the business – run it like you mean business!  Have written policies and procedures and follow them. Have job descriptions and employee goals and conduct regular employee performance reviews that determine pay increases. Don’t grant exceptions or provide special treatment to family members or others who may feel entitled.
  • Put on a fresh coat of paint – literally and figuratively.  Giving the business a facelift demonstrates that you care about the business.  Clean, well-lit facilities will inspire respect from employees as well as outsiders.  First impressions count when business value is determined.

Implementing these tips makes good sense and will increase the value of any business.

Owners who are planning to transition business ownership to outsiders or insiders should implement these tips as quickly as possible.  Future owners will want to see a track record of good performance before they will be comfortable investing in the business and providing the owner with the value they have worked so hard to build.