Good Values: Sound Startup Advice
By The Sloan Brothers - StartupNation

Let's assume your moral fiber is strong.

With that out of the way, now let's get down to values—that is, the price your business might fetch if you decide to sell it. Getting the best value for your business is not something that just happens. It's something you make happen. Like good values that come from a proper upbringing, good values in business come from a concerted effort on your part to build up the inherent qualities of your company.

Whether you're in your third year of growth or you're just starting out, here are some tips we've gathered from people who've successfully sold their companies and moved on to what's next in their lives.

Maxing out the Value

Some of the key factors that determine value are:

  • Product line - how old are the products? How well are they respected in the marketplace?
  • Market share - the higher the better
  • Quality of your customers — what's their reputation and dependability in terms of future business?
  • Overall state of the industry - is it a growth industry or one that's shrinking?
  • Intensity of competition, including overseas — what is the degree of threat the competition presents?
  • Team members — who is crucial to the ongoing value of the business? Who will stay onboard after the sale?
  • State of your financials - if you have large debts, these will likely be subtracted from your company's price tag.

The Best Suitors

The best buyer is a strategic buyer - one that sees added value in the integration of your company with his or her company. The added value could be:

  • Immediate access to customers that the buyer doesn't have access to
  • Ability to sell a combination of both companies' products to the combined customer base
  • Significant integration savings due to elimination of duplicated activities (like finance, computer operations, sales management, executive management)

In The Trenches Wisdom

Here are some things you should take into account as you design your ideal exit:

  • Loyal and longstanding customer accounts can positively influence your company's perceived value.
  • As we always say, "Don't buy into your own hype!" Most owners think their company is more valuable than most buyers do.
  • Beyond the balance sheet, incremental value can be generated from assets such as your brand, trademarks, patents or trade secrets.
  • To maximize your cash out, try to get your receivables as low as possible in the months before the sale, and keep an especially tight control over expenses.
  • You can get more money for your company if you're willing to take a payment schedule based upon the future success of the company, but this has a higher potential for buyer abuse.
  • Companies that have shown sustained high growth rates often claim a higher value at the time of exit.
  • Be cautious about making yourself fundamental to the ongoing activities of the company. The more important you are to the future success of the business, the less valuable it will be to a buyer without you at the helm.

Our Bottom Line

The way you handle the upbringing of your business can have a big impact on whether it has good values when it's ready for exit. No matter if you're a startup or a going enterprise, to optimize your opportunity, be sure you have a clear strategy for building value.

StartupNation provides expert advice, community forums and resources for entrepreneurs starting a small business, from business plan and life plan development to marketing and sales techniques.