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Five Ways to Boost the Sale Price of Your Business

“How can I get the best possible price when I sell my business?”

It’s probably the biggest question I get from owners eyeing an exit. If you’re thinking about selling, it’s smart to plan ahead.

It’s important to understand that business value is dynamic, not set. It’s affected by a mix of external and internal forces that influence what a buyer might be willing to pay at a given time.

The external factors are typically out of your control, including the economy and current events. For example, rising interest rates can decrease valuation multiples, and the lingering effects of COVID-19 or the potential impacts of tariffs are on buyers’ minds. Other external factors include legislative changes, like Bill C-208, which made it more attractive to transfer a business to family members. That said, the trend away from intergenerational transfers continues, and there are lots of buyers in the market.

And there are a number of internal factors across your operations you can control, from human resources and finances to record-keeping and corporate citizenship, that can make a big difference in how much you get at sale time.

Ideally, you’d have a few years to prepare, but these strategies can help even on a tighter timeline. After all, life happens. Maybe an illness or unexpected situation arose, forcing a sale sooner than expected. Focus on what you can control to ensure you don’t leave money on the table.

Here are five ways to maximize the value of your business before you put it on the market.

1. Build a Strong Management Team

Too many companies rely on the heroic efforts of their owners to succeed. This is a warning sign for buyers who want to know the business can run smoothly once the owner is out of the picture. Before a sale, you need to think about stepping back, altering job responsibilities, mentoring key staff, and passing on institutional knowledge and relationships with clients, customers, and suppliers.

Transactions involving well-established management teams are less risky, which increases your business value for a few reasons:

• Smooth transition between the buyer and seller
• Management has a strong understanding of the business
• Cash flows are not directly associated with the owner
• Buyers don’t need to be directly involved in day-to-day operations, increasing the pool of potential purchasers

2. Have a Healthy Cash Flow

Most buyers use an income approach to value a business, meaning they look at historical and projected cash flow. Simply put, more cash flow equals more value. To maximize your cash flow, focus on:

• Eliminating non-essential expenses: This includes discretionary expenses that potentially tip over into the personal category, such as company vehicles, travel for work (and pleasure!), and family on the payroll for income-splitting. The more non-essentials you can remove from your income statement, the more cash flow you’ll unlock.
• Streamlining your operations: Are there parts of your business where you can become more efficient? This is a good time to look for ways to tighten up.
• Accurately recording all sales: Things move fast for small to medium-sized businesses, and sometimes transactions get missed. Make sure every sale is on the books.

Remember: Businesses with stronger cash flow sell for higher prices. It’s that simple.

3. Practice Good Financial Reporting/Accounting

First impressions matter, and your financials are your first impression to a buyer. Ensure that your financial statements and tax and other filings are up-to-date and accurate. This builds trust and shows you’re serious about your business.

Nothing raises concern for purchasers more than a business that does not have its financial house in order.

If you’ve been a spreadsheets-focused operation, now is a good time to consider accounting software. Many buyers will want to be able to run reports, such as monthly financial statements, with the push of a button.

Bonus: Good financials help you make informed decisions that could increase the value of your business.

4. Diversify Customers, Lock in Contracts

Buyers get nervous with uncertainty, and that extends to your customer base. If you’re overly reliant on one or two big clients, it increases risk and decreases your company’s value. That’s why diversifying your client/customer base is very important, and long-term contracts with customers, suppliers, and key employees are golden. They provide buyers with:

• Confidence in future cash flow (customers)
• Cost certainty (suppliers)
• Reasonable assurance that appropriately incentivized key people will stay on (employees)

Across your business, secure contracts reduce risk and make it more appealing.

5. Support Your Community

Purchasers like to see companies that are good corporate citizens that give back to their communities through sponsorship, volunteering, or other ways of getting involved in local initiatives.

All of these activities create a positive image and enhance your reputation. They also show what you stand for–and that’s a plus because values-driven organizations are also more valuable. Demonstrating a strong connection to the community can make your business more attractive, reduce perceived risk, and ultimately contribute to a higher sale price.

Selling a business is a big deal–there’s a lot at stake, and it is an emotional journey for all of the owners that we work with. By taking these steps today, you set your business up for a smooth, successful sale down the road.

Steve Bragg, MC Advisory’s Practice Leader of Transaction Advisory Services, brings nearly 30 years of experience in succession planning, exit strategy, mergers and acquisitions, and business valuation. A proud Newfoundlander and active community member, Steve commentates games for the St. John’s Curling Club YouTube channel and volunteers with several charitable organizations and boards in his spare time.