The Four Biggest Mistakes That Can Negatively Affect the Value of Your Business

Is it your goal to sell your business? Whether you’re looking at a sale soon or later on down the road, it’s never too late to start preparing your business for an eventual sale. That’s because when you’re in the mindset that you’ll be selling your business, you’ll be constantly pushing yourself to innovate, improve and grow your business, and invest in it to make sure that it stays ahead of its competitors and is full of potential and an appealing business to own. On the other hand, if you run your business without the mindset of selling it one day, you may be negatively affecting your chances of getting a profitable sale eventually, whenever you decide to put it on the market.

According to recent research, median business financials are on the upswing. For example, the median asking price for a business sold in the United States went up by 18 percent since Q2 of the year 2018. Jenny Murs, a business blogger at UKWritings and Boomessays, explains to readers "that means the bar is now much higher than ever before, and business owners have to look at many different ways to make their company more valuable to prospective buyers. The ability of the owner to sell the business relies almost completely on the fundamentals of the business."

To start, you need a firm grasp on the reality of your business. Look at what you are doing well as the owner of the business, and be realistic with yourself about what areas need to be improved. Once you can figure out that baseline and where to start from, you can start taking key measures to improve the value of your business, while at the same time fixing any issues that you currently have that will prevent your from selling your business on the market at the best price possible. With this in mind, we’ve come up with the top four mistakes that can really negatively impact your business value. If you’re aware of them, you can focus on these areas right away for improvement.

1. Not keeping proper and professional records.

Potential buyers and brokers will be pouring over your details, evaluating the value of your business. Serious prospects will be wanting to see your financial details for the last three years, at a minimum. They will need to see the sales history of your business, your different revenue streams, what your operating costs are, and much more. At the end of the day, what they want to find out is if your business is viable, and even more importantly, if it’s scalable.

You’ll want to give your business and yourself as a business owner some credibility. Do that by providing organized and professional financial statements and a business plan that shows all of your goals clearly outlined as well as the milestones you reached. Any kind of reporting that looks sloppy, unclear, or even worse missing some crucial financial documents are some serious red flags for brokers and prospective buyers that will make them think that you mismanaged your business and there may be other areas of the business that are sloppy as well.

2. Not investing in or improving your business.

One common mistake that surprisingly a lot of business owners make is to stop investing in your business or making improvements to it as soon as you decide that you’re going to be selling it. Instead, Thomas Jeff Kane, a writer at Academized and Australian Reviewer, explains that business owners interested in selling their businesses "should have the opposite mentality and invest in it as if you weren’t going to sell and it was going to be your business moving forward. Consider different ways that you can increase the cash flow coming in or how you can streamline any business processes."

That’s a good way to show prospective buyers that your business has a lot of room and opportunity to grow and expand if they were to buy it. You should also be constantly revaluating your business and finding key places where you can reduce costs. Take the money that you have saved by doing this and invest it back into your business to show that you’re still willing to put money towards improving it. What’s critical to remember at this stage is that a business that appears stagnant and not promising or there’s no growth happening doesn’t look like an appealing business to buyers and you’ll see it quickly lose value.

3. Not innovating.

If you’re not tech savvy and constantly on the lookout for ways to improve and innovate in your business, your business won’t seem as appealing to potential buyers. That’s because they know that they themselves will eventually have to tackle all the innovation tasks that need to get done, so they’re less likely to want to sign the offer and buy the business. If you’re a business owner, you want to constantly be aware of the innovative options out there and tech solutions for your company.

Find out about what newest trends and technologies are being used in your industry and find ways that you can add them in your own business model and strategy. Keep your products and services up to date so you can compete against others in the marketplace. Innovating goes beyond just your products and services though, to your entire business’s online presence. Put a lot of focus into your online work, like an updated and streamlined website and on point social media pages that you keep current and active. This will make your business at the top of its game, increase its value, as well as boost your customer base.

4. Not having a stable workforce

If you find that your business has a lot of employee turnover and the workforce isn’t that stable, you need to find ways to reduce that before you put your business up for sale. As per Nicolas Fuller, a journalist at OXEssays and Best Essay Services, "by having a stable workforce, low churn, and competent leadership and management, you’re giving prospective buyers some much needed peace of mind that even an ownership change of the company won’t affect the smooth running operations."

A workforce that is well trained reassures buyers with concerns that they don’t need to hire or train new employees after the company is sold. You should always be thinking about ways that you can attract top talent and make sure they are loyal and stay with the company. Be sure to offer excellent training programs, a lot of opportunities for advancement and career development, flexible work arrangements, and other good incentives.

Valuing a business is a tricky process because there’s a lot of moving parts and variables to keep in mind. When it’s time for you to list your business, you’ll want to reach out to a professional appraiser to find out the true worth of your business. At the same time, you’ll want to avoid these four major mistakes outlined above and continue to take steps to increase your business’ value and prevent it from deteriorating or stagnating.

Tutor Aimee Laurence enjoys sharing her thoughts and insights on business management and business-for-sale issues. Her goal is to help small business owners make smart decisions about selling their businesses and getting top dollar.

Published by ExitAdviser


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