I have been selling businesses for 10+ years now. As a Business Broker in Adelaide and Melbourne, I have sold a couple of businesses even before they were listed on the open market. However, there are businesses, that stayed on the market for as long as 6 years (no exaggeration!). Having done this for more than a decade now, I can confidently say that there are patterns – generic patterns and industry-specific patterns of what makes a business sell for a LOT or a little more than their competitors. 

We all know that some businesses are in high demand over others, however, there is a lot in the way of how a business owner plans their exit that contributes to a business selling for a higher multiple or sale price. 

Before I talk about what makes a business sell for more than others, I would like to highlight that I am an entrepreneur myself and many of my clients are cut from the same cloth as me fiercely independent, driven, and reluctant to relinquish control. So, when I have to suggest things like finding a second-in-command who’s better at the job or making strategic changes to increase the business’s value, it can be met with resistance.

If you are reading this though, I insist that you hear and absorb the key features from the patterns I have witnessed from the businesses I have sold which achieved the highest possible price and were sold in the fastest possible time frame. 

It all lies in the preparation for the sale of a business i.e. exit planning. 

1. Get the financials right

Although basic, a reasonable majority of business owners don’t know their books well. The good news is that you do not need to be an accountant or a bookkeeper to have clean books that show profitability and lack ambiguity.   

Here are some of the factors to consider: 

  • Review stock levels to align with operational needs and run promotions to clear out excess or stale inventory. Getting rid of old stock by running promotions if possible is always a good idea. Overstocking is never a good one. 
  • Eliminate personal expenses by providing a clear picture of the business’s financial health. From profit and loss statements to a good business broker would be able to normalise your accounts to showcase true profitability, however, it is hard to add back house cleaning charges that are expensed as “advertising”.
  • Make sure staff rosters match payroll records to demonstrate efficient operations.  ATO publishes on their website some industry benchmarks and this is available to the general public to measure their performance against. A cafe with 15% payroll expenses would show good profitability but would struggle to sell. 

Know more about business benchmarks here.

2. Make the business independent of you

Reduce dependency by implementing standard operating procedures and delegating responsibilities to capable staff members. A business that can operate smoothly without relying solely on its owner is more attractive to potential buyers. Get the business out of your head, and onto paper and take that 3 week’s holiday while your general manager manages the operations of your business. 

3. Customer diversification

Mitigate the risk of revenue loss by diversifying your customer base. Avoid overreliance on a single client by spreading revenue streams across multiple customers. 

4. Predictable stream of income

Secure long-term contracts with clear terms and exit clauses to provide stability and predictability to your business. If possible, secure contracts with your recurring customers. 

5. Leasing

Evaluate your leasing arrangements to ensure they contribute positively to your business’s value. Negotiate long-term leases with favourable terms and renewal options to provide assurance to potential buyers. A stable and secure physical location can significantly enhance your business’s attractiveness to investors especially if your business relies on the retail location of the business. 

6. Scalability

Showcase the scalability of your business by demonstrating increasing profit margins alongside revenue growth. Needless to say, a business that’s continuously increasing and has the potential to increase margins, revenue, and customer base is an attractive business and, thus sells fast!

7. Competitive advantage

Highlight your competitive advantage, whether it’s superior product quality, innovative solutions, or exceptional customer service. A business with a clear competitive edge and one that commands its presence in the market  is more likely to command a higher valuation in the market 

8. Digital presence

Strategy and rating: Google My Business, Instagram, Facebook,  and Google SEO ranking – In today’s world are considered assets that make a significant impact on the value of your business. Having a clear digital strategy and investment in these platforms ensures that the business is thriving and have a constant customer inflow via these valuable channels. 

9. Getting the right advice

Understanding the dynamics and industry multiples is very important.  Consult with your business broker to gain insights into valuation methodologies and identify opportunities to increase your business’s multiplier. If your business broker can’t understand that, speak to the next one. A good business broker should know what you can do to increase the value of your business. 

By focusing on these key areas and executing a well-thought-out strategy, you can unlock the maximum value of your business and achieve a successful sale that rewards your hard work and dedication.

As always, speak to a qualified and experienced business broker to get a current business appraisal. Take and implement the advice on what you can do to increase the value of your business.