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Tips to Make Your Business Attractive to Investors

Posted on: September 7th, 2020

I have performed many appraisals to prepare a business for sale, as well as appraisals for potential investors assessing a business’s value and earnings potential. No matter the type of business or industry, there are several aspects I have seen that make a business more attractive to a potential buyer. Here are tips, along with suggested resources to call upon for each category.
Organized Financials — It is much easier for a potential purchaser to understand the business with an easy-to-follow chart of accounts, regularly prepared balance sheets, income statements and cash-flow statements, along with supporting entries and/or documentation. Think of the phrase, “follow the money.” Can someone easily trace what was spent in order to produce the resulting income?
Are financial statements prepared regularly? Audited financial statements are the most reliable, but many businesses have their financials reviewed by an outside accounting firm. If you are considering selling your business or preparing it for transition, I highly recommend having the financials reviewed by an accounting firm at least annually.
Resources: Accountant, CPA, industry specialist / consultant
Management Reports — How do owners and managers keep tabs on the activities of their organization? What reports do you review daily, weekly, monthly, quarterly and annually? Would these reports give an outsider a strong understanding of how this business runs? Are there some modifications that could turn these internal management reports into a source of promotion to a potential investor? Present your company’s key performance indicators (KPIs) vs. standard industry KPIs to highlight the company’s strengths.
Resources: Industry specialist / consultant / business broker
Legal Organization — Is the firm set up in the most advantageous manner for tax and legal purposes? Some tax strategies work well for ongoing operations but might present tax burdens upon a sale. Planning ahead is imperative, as these types of changes take time.
Resources: Attorney, CPA, commercial real estate broker
Specialty — Is there something about your business that is unique and gives it a competitive edge? Figure out a way to define it, track it, compare it to the industry and show that your company is the best. Some examples could include:
• Customer service — Online reviews, stars, ratings, CSI
• Speed — Delivery times, order completion times, turnover
• Attention to detail — number of returns, line items per ticket
• Sales — number of sales, volume of sales, repeat customers, number of orders
• Margins — margins tracked over time vs. the industry. If you consistently meet or exceed industry margins, that is a very compelling reason to purchase your business and can increase the sales price.
• Team — online reviews that mention specific team members, certifications, internal awards, external or industry awards, special training, presentations, published articles, patents
Resources: Industry specialist / consultant / peer groups / industry organizations / publications
Clear Path — Consider your company from a purchaser’s point of view. How can you make it easy to buy? How can you build a clear picture of what they can expect and what steps they will need to take? Are processes documented? Is there a procedures manual in place? Are critical records organized and backed up? Can you build a list of helpful resources? These could be critical for an investor, especially one new to your industry.
You as the seller also need a clear path. If you built this business from scratch and invested years of blood, sweat and tears, the business is almost your “baby.” You need to have a clear vision of what you are going to do next. What does this have to do with making your business more attractive? They buyer needs to see that you have a positive reason for selling, that you have something to look forward to. If they get the impression that the business has worn you down and you are too exhausted to go on, they may reconsider the purchase.
Resources: Financial planner / retirement specialist / friends and family / social organizations
An appraisal helps you assess these areas, clarifies what drives the value of your business and highlights what can be done to increase that value. We are here to help as a part of your team of qualified advisors. We offer a free, confidential consultation to address your questions. For more information, please contact me at Dealership Valuation Services, 303-994-6919.