The sale of a business is likely the most emotional decision an owner will make since first deciding to become an entrepreneur. Often when approached with an offer, an owner simply isn’t ready to capitalize on the opportunity and maximize the deal – however, a little presentation work can change this, and increase the value dramatically.

Proactive entrepreneurs prepare for such an opportunity by identifying aspects of the business that would both be attractive, and of concern, to a potential buyer. By understanding the buyer’s perspective, changes can be implemented to alleviate potential risk factors, and thus increase value:

1. First impressions matter. How buyers perceive your business is critical and how your company presents in general will tell them a lot about what needs to be updated, changed or improved. Potential buyers will be concerned with whether they will have to invest in new manufacturing equipment, computer networks and other systems. Poor lighting, clutter and dusty inventory will make the business look tired and second-rate. Having a business that is bright, energetic and vibrant will enhance value. Your digital presence, website and social media are all part of presenting a business as ready for tomorrow, rather than resting on accolades of yesterday.

David Humphrey

2. Diversify your customer base. Customer concentration (too much revenue from one or a small handful of customers) can be an issue. Buyers may walk away completely, reduce the cash value of their offer, or replace cash at closing with a payout over time structured deal. Improve value by ensuring you have a diversified customer base, which will reduce the risk of a significant customer leaving or gaining too much control over pricing.

3. Improve customer retention. Buyers look for businesses that serve a niche and retain customers. Determine why customers choose to return to your business time and again. Perhaps it’s because of specialty manufacturing equipment, knowledge or expertise, quicker delivery times or even an enhanced customer experience. Creating lasting, sticky customer relationships increases the business’ value.

4. Ensure the future looks bright. Safeguarding against potential irrelevance in a quickly evolving world through diversification and innovation is critical. No buyer is going to pay a premium to invest in a business that seems as if it’s already fading away. You must know, and be able to explain to a buyer, why the business will remain relevant in the marketplace going forward.

5. Positive trends. All businesses go through cycles that are influenced by a number of factors such as the weather, the economy or specific events within the company. Buyers are looking for a business with positive revenue and profit trends and are typically willing to pay more to get it. Time the sale for when the trends are positive and value is peaking, not when the owner is coasting and the business is stagnant.

6. Having and/or renewing patents may add value. Patents that impact operations or sales or patents that protect and insulate the business from competitors tend to be valuable. If there is any question as to whether intellectual property should be patented, consult attorneys specializing in patent law to evaluate the right course of action.

7. Know how to answer the buyer’s toughest question: “Why are you selling?” How you answer the question will have a direct effect on perceived value. Business owners must offer a clear and convincing reasoning that the business is strong and growing but they are selling because it is time for a change.

8. Once a deal is agreed to, time is of the essence. The longer it takes, the greater the chance of a buyer postponing, renegotiating or walking away. Be sure to promptly provide necessary documentation, remove any hurdles and work with your attorney to expedite the transaction. Time kills deals, and deals never get better during the delay between an offer letter and the closing.

9. It’s not your success; it’s the company’s success. As the owner of the business, if you are the most essential employee, key to sales, operations, efficiency and growth then value decreases, sometimes even to zero. It is imperative that action is taken to make your role less critical. The focus should always be on the success of the business’ entire team.

10. Increase revenues. A business with growing revenues conveys the opportunity for even greater future increased profits, growth, and market share. In the years leading up to the sale, one of the greatest value enhancement objectives is increasing revenues. Greater revenues can offset many other issues which may cause a buyer to hesitate in offering exciting and interesting price and terms.

David A. Humphrey, CPA, CVA, is the author of “The Art of Business Value Enhancement” and the owner of Beacon Equity Advisors, a boutique firm specializing in mergers, acquisitions and valuations of closely held businesses in New England. Visit www.beaconequityadvisors.com for more information.