Preparing for the sale of your business

Preparation for the sale of a business demands focus on future growth, cashflow, profitability and risk management. Incorporating all these key drivers into the business plan as early as possible, the value of the company will be maximized.
A potential buyer wants to invest in a company that has future potential growth.  Companies that are experiencing flat or declining sales-trend, are less attractive than ones that continue growing.  Although  growth is very much related to the market conditions and the industry trends, it also derives from improving your management style, your production capacity and your ability to diversify.  
Cashflow is very important. Companies with high level of cash available to be returned to shareholders or invested in business, have higher valuations than companies that have cash tied up in working capital (i.e. trade debtors and inventory). Key figures are the level of  free cash flow (i.e. operating cashflow minus capital expenditures) and the net trading cycle (i.e. the time required to collect cash from trade debtors and turn over the company’s stock, minus, the time it takes the company to pay its trade creditors). The quicker the cycle, the stronger the cash flow.
Profitability is important because, generally, the valuation of a business is based on a multiple of profits (i.e. the price earnings ratio). Higher profits produce higher valuations. Therefore, companies try hard to increase their margins and reduce their unnecessary costs in order to generate stronger  bottom line results.
Furthermore, future potential profits represent an assurance to potential buyers that the company will continue to run smoothly after the change of ownership and the profits will remain at same or  increased levels (based on the market conditions and their ability to run and grow the business).
The value of a company is very close-related to risk. The lower the risk the higher the value.
Companies that rely on a few key customers have a higher risk profile than those that have a diversified customer base.
Small & medium companies that over rely on a few key people in order to operate and run the business, are in risk. Their departure may create a loss of knowledge and, consequently, a lower value of the company. The implementation of a plan to retain these individuals is, strategically, crucial.  
Focusing on the above drivers of value, companies will start attracting more funding from the banks, additional talented people, more respect in the market, etc. Most probably, those that have a niche product, market, experience, patent or trademark can be attractive to a large corporate which has a large clientele and distribution capabilities in order to sell their products/services in much higher volumes.
Under these conditions the value of your business can be substantially high.
 
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