How to Make Your Business More Attractive to Buyers and Investors
At some point, every business owner thinks about an exit - whether that’s selling to a third party, transitioning to the next generation, or bringing in an investor. The key to getting the best valuation isn’t just about revenue or profitability; it’s about building a business that runs smoothly, generates predictable cash flow, and doesn’t rely too much on you.
If you want to maximize the value of your business, here are a few things to focus on.
1. Make Sure the Business Can Run Without You
Buyers aren’t just looking for a successful business, they’re looking for one that won’t fall apart the minute you step away. If you’re the one making all the key decisions, holding the client relationships, and keeping things moving, that’s a problem.
What can you do?
- Delegate more responsibility to your leadership team.
- Document your processes so your business isn’t reliant on tribal knowledge.
- Put a plan in place for leadership transitions.
A business that doesn’t need you every day is far more valuable than one that does.
2. Clean Up Your Financials
If you’re thinking about selling in the next few years, now is the time to tighten up your financials. Buyers and investors want to see:
- Clean, accurate financial statements.
- Consistent revenue and profit margins.
- Predictable cash flow.
Get a professional review of your books, eliminate unnecessary expenses, and make sure your numbers tell a strong, clear story. And get the “add-backs situation” right ASAP so that you don’t have to talk about adjusted financial performance.
A key to cleaning up your financials occurs during your periodic financial close process. These resources will help you get your financials ‘sale ready’:
3. Create Recurring Revenue
The more predictable your revenue, the more valuable your business. Buyers love businesses with recurring or contract-based income because it reduces risk. If you don’t already have recurring revenue, think about ways to build it in:
- Subscription services or maintenance contracts.
- Long-term agreements with key customers.
- Licensing or royalty arrangements.
Even if you sell products instead of services, look for ways to lock in repeat business.
4. Diversify Your Customer Base
If one or two customers make up a big chunk of your revenue, that’s a big risk for a buyer. If those customers leave, the business takes a hit. Ideally, no single customer should account for a significant portion of your revenue.
If you’re too reliant on a handful of big clients, it’s time to expand your customer base and reduce that risk.
5. Reduce Liabilities and Risks
Buyers don’t just look at what’s working, they look at what could go wrong. If they see too many red flags, they’ll either walk away or use them to negotiate a lower valuation. Take a hard look at:
- Legal or compliance issues that need to be cleaned up.
- Vendor and customer contracts - are they solid?
- Intellectual property - are your trademarks, patents, or proprietary processes protected?
The fewer surprises in due diligence, the smoother your exit will be.
6. Invest in Your People
Your employees are one of the biggest factors in your business’s success and in its value. Buyers want a strong, engaged team that will stick around after the sale. The best way to make sure that happens:
- Develop your leadership team so the business isn’t dependent on you.
- Create incentives to keep key employees on board.
- Build a culture where people want to stay.
If you’ve followed Dave for a while, you know he believes people are a company’s most valuable asset. A business with a great team is worth more. Period. Full stop.
Here is Dave discussing our most valuable assets with Steve Rosvold on CFO Talk: Evaluating Our Most Valuable Resource with Dave Bookbinder
7. Have a Clear Growth Plan
Buyers aren’t just buying what your business is today, they’re buying its future potential. They want to know where it’s going. What’s your plan for:
- Expanding into new markets?
- Launching new products or services?
- Scaling operations efficiently?
The value of your company is equal to the present value of the economic benefits that it generates in the future. A business with a clear path for growth is far more attractive than one just coasting along.
8. Get Your Paperwork in Order
One of the biggest deal-killers in a sale is sloppy or missing documentation. If you’re serious about preparing your business for sale, make sure your:
- Financials are reviewed or audited.
- Corporate records and contracts are up to date.
- Tax and compliance issues are resolved.
You don’t want a buyer finding problems during due diligence that you could have fixed ahead of time.
Final Thoughts
Building a valuable business doesn’t happen overnight. But if you start working on these things now, you’ll have more control over your exit and a higher valuation when the time comes.
Even if you’re not planning to sell anytime soon, these steps will make your business stronger, more profitable, and easier to run. And that’s a win no matter what your long-term plan looks like.
If you’re thinking about your exit strategy, or just want to make your business more valuable, connect with Dave. Learn more about him, his work and reach out to him from here; Dave Bookbinder’s Library
Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.
Become a Member today and get 30% off on-demand courses and tools!
For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.
Follow us on Linkedin!
