When planning to sell a business, most business owners have one ambition—selling their businesses at the highest possible price to achieve exit goals or fund the next phase of their career or life. However, when the time finally comes, most business owners are shocked to realize that their business’s value is far less than they expected. If you are one of these business owners, you must find a way to increase the value of your business before listing it for sale.
Why should you focus on increasing the value of your business?
It’s not uncommon for business owners to have an average of 70% – 90% of their net worth tied up in their businesses. As a result, most business owners depend highly on selling their business to get the money they need for retirement. That’s why it’s important to find ways to increase the value of their businesses before the sale—otherwise, they won’t get the money they require for their retirement.
What determines the value of a business?
When planning to sell a business, a business owner needs to get the accurate value of their business. Hiring an experienced appraiser to value your business can help you determine the economic value of your business. Here is what determines the value of a business.
• Financial health
• Market value
• Future financial prospects
• Book value
• Owned assets
With that said, let’s look at the things you should avoid when focusing on boosting the value of your business. Please note that avoiding these things can go a long way towards increasing the sale value of your business.
Putting your effort into tax minimization
All business owners want to maximize the value of their company, but several common mistakes can have the opposite effect. One such mistake is to focus too heavily on tax minimization. Focus on tax minimization can create the impression that the business is not profitable. Second, it can make the business appear to be high risk. Lastly, it can make it difficult to sell the business in the future.
While it is certainly important to minimize taxes, doing so at the expense of other priorities can ultimately lead to a lower company value. For example, if a business owner decreases inventory levels to reduce taxable income, it could lead to stockouts and lost sales. Similarly, if a business cuts corners on research and development to save on taxes, it could miss out on vital new opportunities. Therefore, it is important to focus on increasing profitability and minimizing expenses rather than taxes. By doing so, you will be more likely to maximize the value of your business.
Focusing on revenue instead of margin
All businesses need to make a profit to succeed, but too often, businesses focus on driving revenue rather than margins. This can be a mistake for several reasons. First, it can lead to sacrificing quality to sell more products or services. Second, it can put the business in a position where it is dependent on volume rather than value. And finally, it can result in the business being unable to weather a downturn in the economy.
Rather than focusing on revenue, businesses should instead focus on generating margin-rich sales. This will help ensure that the business is selling high-quality products and services, is less reliant on economic conditions, and can weather any storms that come its way.
Failure to innovate
Seasoned Orlando Business Broker, Cress V. Diglio says that one of the most common mistakes that can decrease the value of a business is failing to innovate. In today’s ever-changing marketplace, keeping up with the latest trends and technologies is essential. Consumers are always looking for new and improved products and services, so businesses that don’t offer anything new are quickly left behind.
Additionally, failing to innovate can make it difficult to attract and retain talented employees. With so many options available, workers are increasingly drawn to businesses that offer cutting-edge solutions and an environment that fosters creativity. Finally, investors are more likely to put their money into companies constantly innovating and finding new ways to grow.
Too much dependence on the owner
Business owners’ most common mistake is relying too heavily on themselves. While it’s important to be involved in the day-to-day operations of your business, you can’t do everything yourself. At some point, you’ll need to delegate tasks to other people. Otherwise, you’ll quickly become overwhelmed, and your business will suffer.
Additionally, by relying too heavily on yourself, you’re also increasing the risk of burnout. It’s important to take time for yourself and your personal life outside work. Otherwise, you’ll get burned out and won’t be able to give your business the attention it needs.
Finally, if a business is too reliant on its owner, it can be difficult to maintain its value if the owner decides to retire or sell the company. If you’re the only one who knows how to do certain things, it will be tough to scale up. Thus it is important to develop systems and processes that others can follow and create a management team that can continue to run the business effectively in the event that the owner is no longer involved.
An unstable workforce.
A business is only as strong as its workforce. To be successful, businesses need to have employees who are reliable, productive, and efficient. However, an unstable workforce can quickly decline the quality of a business’s products or services. Several factors can contribute to an unstable workforce, including high turnover rates, absenteeism, and employee unrest. When businesses fail to address these issues, they often struggle to compete in the marketplace. As a result, businesses need to focus on creating a stable workforce if they want to maintain a high level of success.