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When someone decides to sell their house, what are the first things they do? They paint it, clean it up, get rid of clutter, fix everything, and make it as appealing as possible. Then they put up a sign, open the doors, and invite the world to come in and take a look. The more, the merrier.

Yet too few sellers properly prepare their businesses for sale (which is why I wrote If They Can Sell Pet Rocks, Why Can’t You Sell Your Business (For What You Want)?) Sometimes a business, too, needs cleaning and painting. Often the accounting needs work, growth proved, and dependencies removed.

Recently I visited an industrial business. As we walked out, I commented to my associate, “I understand why the employees eat lunch in their cars.” The offices, and especially the lunchroom, were disgustingly filthy. I wouldn’t want to eat in there, that’s for sure. Any buyer visiting the business would be taken aback by the conditions and wonder (remember, buyers are skeptical) if the machinery is in as bad a shape as the facilities.

So let’s look at the top four things 90% of businesses need to do to increase their company’s value and ultimately its price:

  1. Get the accounting systems in order. Quit treating the business as an extension of your personal checkbook. Show lots of profit (yes, pay more tax), as buyers and banks love this.
  2. Don’t just claim there’s growth potential. Take some time presale to prove it. A couple years or more of tax returns showing growth of both the top and bottom line will increase your price.
  3. Get yourself out of the day-to-day operations. Concentrate on strategy, vision, and executing said strategy. Then make sure there are no dependencies with your employees, customers, and vendors.
  4. Show that you can attract and retain great employees. As one of my best clients says, “A people hire A people, B people hire C people.” Hire the best, and keep them around.

Buyers, there is no Multiple Listing Service for businesses. You have to prospect, call every intermediary, get referrals, and do whatever else you have to do to find a willing seller. It’s not easy. In fact, it’s the toughest part of the process.

And while the contract will have exhibits showing what the seller represents and warranties, it’s not like buying a home, where there are legal forms the seller must fill out to disclose faults, current or historical. So it’s “Buyer Beware.” If you don’t ask, the seller may either inadvertently or purposely not tell you things.

Finally, beauty is in the eye of the beholder, as is value. The vast majority of owners think their business is so special that traditional valuation methods don’t apply to it. And you know this means they think it’s worth a lot more. I recently read a “rule of thumbs” list from an old-time business broker. He stated that the true value of a business, aka the price, is halfway between what the buyer and seller think it’s worth.

To compound matters, unlike homes, businesses have very few comparable sales statistics. A 3,000-square-foot house will be worth about what another 3,000-square-foot house in the same neighborhood is worth. However, two businesses in the same city and industry with the same sales and profits may be worth vastly different amounts. This could be because of any of the non-financial factors, or (as per the old appraiser joke) what if one got to their sales and profit amounts by growing 20% per year and the other by declining 20% per year?