The Business Owner’s Guide to Maximizing Business Value: Steps for a Profitable Exit

When the time comes to sell your business, the last thing you want is to be caught unprepared. To ensure a successful exit on your terms and to the right buyer, it is essential that you maximize your business value before going to market. This is the first installment of our new series on “Maximizing the Value of Your Business.” Through this series, we will help you understand the importance of business value, how businesses are valued, and the steps you need to take to enhance your business’ worth and set yourself up for success.

1.    Why increasing business value matters

It's common for business owners to have 70% to 90% of their net worth tied up in their privately owned companies, making them heavily reliant on the business sale to fund their retirement. And most owners will need to increase their business’s value before transitioning; otherwise, they might not net enough money—after taxes and fees—to support their retirement goals.

We will look at what defines business value, how owners can enhance it, and how they can determine their business’s current worth.

2.    How businesses Are valued

Valuing a business isn’t an exact science; there are multiple ways of calculating business value depending on the circumstances. In the context of business sales, we are concerned with “market value” which is driven primarily by the projected future cash flows for the prospective buyer, regardless of whether the sale is to an internal or external party.

3.    How much is your business worth?

Most business owners aim to sell or transfer their businesses to fund their retirement, but the first question they typically ask is: “How much is my business worth?” While they might have a general sense of its value, they often lack concrete numbers to support it. In many cases, their expectations are unrealistically high compared to what buyers are actually willing to pay.

This disconnect is quite common. Many business owners don’t fully understand their business's value and they often equate it to how much they’ll need for retirement—what we call the "Wealth Gap." Additionally, they often feel uncertain about the steps required to increase their business's value to effectively fund the next stage of their lives.

4.    How much will you need?

Your “wealth gap” is the amount of money you need to net from your business sale, after taxes and fees, to meet your financial objectives. It’s crucial to have a clear understanding of this gap, as it will guide your decisions moving forward. To determine your wealth gap, consider hiring an experienced financial advisor equipped with the right tools to help you calculate this number accurately. Once you know how much you need, you can compare it to your business value and determine how much you may need to grow your business before you can sell.

5.    Start professionalizing your business

If you’re contemplating a sale in the next one to three years, start “professionalizing” your business now. Here are just a few of the key areas to focus on (we will go into more detail in our upcoming articles):

• Clean and Accurate Financials
• Quality Products and Services
• Solid Management Team

6.    Conduct your own due diligence

Before engaging with potential buyers—whether they’re internal (like family or employees) or external—conduct your own due diligence. Identify and address any weaknesses within your business that could hinder the sale.

By proactively addressing these concerns, you can enhance your business's attractiveness to buyers and mitigate the risk of a sale falling through during their due diligence process.

7.    Understand the importance of qualitative factors

While financial metrics like revenue and profits are undoubtedly important, qualitative factors also play a significant role in your business’s value, such as:

• Depth of Management
• Processes and Procedures
• Intellectual Property
• Operational Continuity

These qualitative aspects can either impress or deter potential buyers, making it crucial to showcase your business’s strengths.

8.    Your commitment to preparing

Yes, preparing your business for sale will require time and effort. But is it worth it? Absolutely. After working with more than 150 clients who successfully sold their businesses to the right buyers, we can confidently say that preparation is the only pathway to securing a solid sale at the right time and for the best price.

9.    Avoid the “Last Minute” decision trap

Many business owners find themselves in the position of needing to sell at what can only be described as the “last minute.” Whether it’s the sudden realization that retirement is just around the corner, the urge to start a new venture, a health issue or simply wanting to step away from the business, this impulsive timing can put you at a significant disadvantage. In fact, statistics show that about 70% of those who rush into selling end up with less favorable outcomes. Make sure you’re prepared.

In the coming weeks, we will delve deeper into strategies for maximizing business value, offering insights and practical tips to guide you through this critical process. Stay tuned as we equip you with the knowledge to navigate your business transition successfully. Your future—and your financial goals—depend on it.

Want to learn more now? In our guide Maximizing the Value of Your Business - Getting the Most You Can from the Sale of Your Business, we debunk common myths about business value and reveal:

• More than a dozen ways to professionalize your business
• The best way to prepare for buyer due diligence
• How to improve the quality of your business to command a premium price

Discover exactly what buyers look for in their acquisition targets and join an elite group of owners who have successfully sold their businesses!

Learn more