9 tips to increase the market value of your business

Here are nine things to consider for anyone looking to increase the market value of their business.

1) Sell excess assets

Surplus assets are assets that are used little or not at all in the company's operations. The longer the existence of the company, the more it accumulates assets which lose their importance over time. If this is the case, at the time of the valuation, as a precaution, the surplus assets will be underestimated. It is best to dispose of them as and when underutilization is observed. This happens frequently with inventories, production, delivery and material handling equipment. Even building space that is no longer occupied must be considered. Beware, you may have excess cash, if so you should discuss with your accountant the best way to transfer the cash out of the operating company.

2) Be in tune with technology

Companies that know how to maintain their level of technology and renew their equipment gain many advantages at evaluation time:

• In general, investments in technology and equipment lead to productivity and profitability gains, which have a positive impact on the market value of the company;

• They are generally more productive than competitors who do not invest, which has a positive impact on their market share and therefore on their value;

• The company and its employees maintain their technological skills, which has a positive impact on the perception of a prospective buyer.

3) Manage your income

The manager is conditioned to question expenses. But what about income? In order to improve their market value, some companies would do well to let go of an unprofitable product or even an unprofitable customer. If you are no longer making a profit in a given area or with a given client, isn't it better to let the loss of money go to the competition?

4) Control your expenses

Managers make decisions regarding “discretionary” spending. This spending is generally easily explained: a slightly more luxurious vehicle than necessary or a business trip that was not strictly necessary. These discretionary expenses are easily subtracted at the time of the evaluation and will be subject to negotiation.

On the other hand, it is impossible to explain to a prospective buyer that he should not consider certain expenses in his evaluation, such as a salary. It can have quite an effect. With a ratio of 5 times earnings, an "excess" salary of $85,000 means a price decrease of $425,000. Cleaning up expenses should be considered 24 months before the sale, in order to demonstrate the company's ability to maintain its activities.

5) Unrealized potential generates little additional market value

We often see in advertisements of businesses for sale: "high potential" or "possible rapid growth" for the future buyer. In order for the seller to obtain the additional market value, he must have completed the "high potential" project.

6) Tax planning

Business owners tend to wait until the last minute to do their tax planning. This delay can be very expensive. Every week, business owners are approached, unsolicited, to see if they are willing to sell. If an attractive offer arises, the seller can hardly say to the buyer: “Can you wait two years for my tax planning to take effect? ". As a business owner, it pays to be ready, even if you don't want to sell right now. An offer could surprise you and the investment in tax planning could become very profitable.

7) Ask for a review

Do you know precisely what influences the value of your company? Most people don't. An appraisal will determine the fair market value. The evaluation should enable you to identify the negative elements to be corrected. Sometimes these are simple measures that have a quick and significant impact on the assessment.

8) Compare yourself with the industry

A lot of data are available on your industry. Comparing your own results with others lets you see where you stand, what you're doing well, and where you could improve. These elements are taken into consideration when a company is valued. Industry financial data are presented in the form of ratios.

If you are going through the process with a professional, require that you to be compared with your true competitors. US data are often easier to find, but are of little use if you own a business that sells its products locally. In many cases, it is possible to find meaningful data that correspond to the reality of the company.

9) Maintain your level of profitability

Over time, fixed assets decrease and debts are repaid. At the same time, depreciation costs and interest costs decrease. These decreases in expenses have the effect of increasing your bottom line, giving the impression that the business is progressing. To properly measure business progress, I advise business leaders to track EBITDA (earnings before taxes, interest, depreciation and amortization) for management purposes. EBITDA allows managers to have a better understanding of their company's operations. It eliminates the financial aspects of running the business from the equation: whether or not to invest; borrow or not. It is the profits from operations that will have the most influence on the value of your business and this is what EBITDA measures.

For more information, do not hesitate to contact Galion Conseil.