Listed in: Selling & succession

Seven ways to help increase the value of your business when selling

Before putting your business on the market, it’s worth looking at a number of things that could help you get the best possible price.

3 minute read

Choosing to sell your business isn’t always an easy call to make, but getting back what you put in can make the decision worthwhile. Here are some ways to help you prepare your business before the ‘for sale’ sign goes up.

1. Fine-tune your business

From a buyer’s perspective, your business is ‘second hand’ so they’re likely to look under the hood for any rattles and bumps. Making sure your business is humming will help brush off any concern that the business may seize up after it’s been passed on.   

Here are some things you could consider:

• replacing aging equipment
• selling under-used assets
• deleting product lines that don’t sell
• removing any unnecessary overheads
• customers switching to competitors
• reducing excess stock.

Lastly, paint what needs to be painted, fix anything that needs fixing, and consider asking someone outside the business for a second opinion. It can often be the small things that create a great first impression for a new buyer.

2. Document processes

Keeping a record of how you do business can reassure a new owner that they can replicate your success. You could consider writing down things like:

• how new business comes in
• the process from first contact to delivery
• the software you use
• key customers and relationships
• main suppliers and agreements
• successful promotions.

Passing this on means your knowledge doesn’t walk out the door when you do.

3. Have accurate accounting records

A buyer will probably conduct ‘due diligence’ by inspecting past financial and trading accounts, to prove your records are correct and future predictions are accurate.

If you’re not using accounting software, now’s a great time to consider starting. Having software connected to your bank accounts will make it easier to prove actual sales and costs. Plus, you won’t have to worry about the hassle of pen and paper.

4. Demonstrate why someone will pay goodwill

Often the value of a business is more than just the dollar figure. This extra part or ‘goodwill’ is what someone will pay for the potential profit your business. This includes intangible parts, like brand reputation, as well as:

• loyal customers
• limited competition
• great employees
• leading products or services
• high margins
• regular recurring revenue
• clear competitive advantage
• reliable suppliers.

If your business doesn’t have any of these, it’s a great time to start creating some.

5. Minimise impacts from competitors

Potential buyers will want to understand the competitive landscape. And the bigger the competitive advantage, the more valuable your business will look. You can show what steps you’ve taken to:

• protect your intellectual property
• retain key staff
• keep your processes secret
• sign exclusive supplier agreements
• maintain ongoing research and development
• renew customer supply contracts or licenses.

Barriers to entry can also include licenses, permits to operate, and a great location. It may also help if you’re an approved vendor that prevents non-approved competitors from creating supply for your customers.

6. Lock in forward revenue

Proving that sales will continue after you’ve passed your business on can also help increase its value. Long-term customer contracts can help with this, as it guarantees future sales. If you don’t have any ongoing sales, then you could consider moving customers to a subscription model that shows strong, recurring revenue.

Anything you can do to prove to that customers will keep coming back will ultimately help improve the value of your business.

7. Secure any leases or agreements

On-going agreements or contracts that last after you’ve gone can also add value, such as your lease.

Other agreements that may add value could include:

• supplier agreements
• licenses to operate
• codes of compliance
• certification or qualifications
• council consents.

Bundle up everything that’s needed to operate your business, and make sure a potential buyer understands the importance (and how hard they were to obtain).

If you’re thinking of selling your business, it’s wise to seek professional help from your accountant, bookkeeper, business broker, or banker for their advice on preparing your business for sale.

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This material is for general information purposes only and does not constitute, and is not intended and is not intended as, personalised financial, legal or tax advice. No representation or warranty is made to the accuracy, reliability or completeness of any statement in this article. BNZ strongly recommends you seek advice specific to your personal financial, legal or tax situation from a qualified adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.