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Maximize Business Value Upon Exit (Phase 2)

by | Oct 28, 2011 | PKF Texas - The Entrepreneur's Playbook®

Note: Running Fridays in FromGregsHead.com is a continuing series of tips brought to you by Greg Price. These run Sunday evenings during the BusinessMaker’s Radio Show on KPRC 950AM. Audio files can be found on the PKF Texas – Entrepreneur’s Playbook® page of the PKF Texas website.

Last week we talked about Phase One of maximizing the value of your business for a sale. This week we will outline Phases Two and Three.

Phase Two is Polishing the Business. The steps in this phase ensure all of the elements of a great business are in place.

Step 3: Make sure, wherever possible, the future revenue of the business is locked in. Preferably, this is through long-term contracts. A buyer of your business needs a degree of certainty with a three year revenue outlook; therefore, contracts with customers need to be robust.

Step 4: Establish a management infrastructure that removes reliance on the owner. The management skills, experience and process to lead the business, in the absence of the owner, need to be in place.

Step 5: Protect the brand of the business. Mechanisms for this include a strong web-presence, social media, patents, and other intellectual property protection.

Step 6: Reduce the debt levels of your business in order to clean up the balance sheet. The cash created in Step 1, Phase One can be used to retire debt and remove loan balances.

Phase 3 is The Creation of the Sale. Now that your business looks as good as it can, it is time to begin the process of selling the business.

Step 7: Find a buyer who “needs” to buy the business. This is the key success factor in maximizing the sales price. Ideally, at this point, several potential buyers have been identified and an analysis of why the business is essential for each potential buyer is carried out.

Step 8: Make sure the negotiation process goes well. Often, the business owner needs to be coached on their role in the sale. The psychology of the sales process must be clearly defined and followed. There is no point in having built a valuable business just to poorly handle the negotiation of the sale.

Step 9: Anticipate all possible objections to be raised by the buyer and any value-reducing tactics in the sales process. This is a part of the sales process planning.

Step 10: Manage the risk in the sales process. You can use a Failure Mode and Effect Analysis (FMEA) process to control all identified risks.

Following these 10 steps can help maximize the probability of getting a higher price for your business. The timing of the exit is up to the owner, but a three to five year time frame allows for applying the ten steps in a way that ensures the best outcome for the owner.

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