Each year, all kinds of businesses, large and small, are sold here in the Phoenix Metro Area. Unfortunately, many owners don’t take all the steps they should to maximize the value of their businesses. Here are some things a business owner can do to ensure that the business generates the highest possible value at the time of the sale.
1. Get All the Ducks in a Row
“A business owner needs to make sure that the books and records are in order,” says Jeffrey Corallo, CPA.
“Step one is having proper accounting for the business. If the business owner doesn’t have the time, hiring a bookkeeper or accountant is a good idea — although they don’t need to be a full-time employee of the business. There are plenty of bookkeeping services and contractors that can come into a business just for the time needed.
“Next, make sure the business taxes are paid and current,” says Corallo. “Again, if the business owner doesn’t have the time, hiring a payroll service, accountant or CPA is a great way to ensure compliance.
“Last but not least, a CPA can be a great sounding board to help you plan the sale, review the work your accountant or bookkeeper has done, and to help ensure your taxes are in compliance,” Corallo adds.
2. Consider Phantom Stocks
One way to increase the value of a business is to ensure that the new owner still has valuable employees in place. “For companies that have key employees, phantom stocks are helpful to retain these individuals for the new owner,” says Brian Bond, Strategic Business Brokers Group.
A phantom stock plan is an employee benefit plan that gives selected employees many of the benefits of stock ownership without actually giving them company stock. This is sometimes referred to as shadow stock. The phantom stock follows the pricing movements of the company’s actual stock and pays out profits to employees. It is a great way to ensure employee loyalty, interest and active participation in the change of ownership.
3. Sell on an Upswing
It may seem like common sense, but it is a good idea to sell when your sales are trending up, not flat and, of course, not when they are declining.
4. Clean Up Your Marketing
“Outdated websites, social media and marketing materials tend to send a message that a business has let things slide. It makes potential buyers wonder what else isn’t quite up to snuff,” says Jen Wolfe, Wolfe Creative. “Take the time (and spend the money) to update the website and printed marketing materials.
“Then business owners (or their social media experts) should go through all social media with a fine-tooth comb. It is a good idea to get rid of any online negative comments whenever possible, because potential buyers will most likely find them,” Wolfe adds.
5. Consider all Deal Structures
“Business owners need to be open to different forms of deal structures,” says Bond. “A straight cash deal at closing may not be the best value for the business.”
For instance, business owners might consider a buyout where a certain amount of cash is paid up front and then monthly or yearly payments are made for a set period of time.
This might be particularly appropriate when a relative is buying the family business, or perhaps when trusted employees or management gets together to buy out the current owner.
6. Get Guidance
Obviously, maximizing the value of a business is more than just these five tips and there are more people who can assist you with valuable advice:
• As mentioned, consult with the bookkeeper, accountant or CPA about the accounting and taxes.
• Discuss the sale with an attorney. A business attorney will provide advice on the necessary legal contracts and procedures. An estate planning attorney might be useful if family inheritance is involved.
• At the very least, examine the online strategy and social media with a marketing professional.
• In addition, business owners might want to work with a business broker. What is a business broker? Think of a broker much like you would a real estate agent. It is the broker’s job to advertise the sale, find potential buyers and help with the closing, as well as advising clients on how to maximize the value of the business.
• After the sale, a financial advisor might be the right person to help invest and protect that hard-earned money.