Add More Value
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC
Are you ready to sell your business? Certain changes that you make now to your company may add value to the business in the long run. Here are three selling points that make your business more attractive:
1. Discretionary funds. “Add-backs” are important items for the seller to point out to the buyer because they increase the businesses value and show the potential income your company can generate. For example, if your company contributed to your personal 401(k) account, that money can be added back to increase the value of the business. The buyer can use that extra money in their new business plan. You may want to add-back insurance premiums, company paid trips to conferences and conventions, and company sponsored entertainment such as season tickets to sporting events. All of these add-backs increase the EBITDA of the company which helps you achieve a higher selling price.
Discretionary expenses can be added back to the value of the company because each business owner has different spending habits. It is important to show the new owner how much cash flow is actually generated by your business. Consult your accountant or financial advisors about the specifics of other types of add-backs.
2. Well-trained employees. Buying a profitable business with good cash flow is important to most buyers; having well-trained employees runs a close second. These employees are valuable because a new owner won’t need to spend money and time hiring/training new staff. In addition, they can help the new owner understand the nuances of the business that have made it profitable in the past.
3. Capital improvements. Any improvements in the company add value and should be highlighted to a potential buyer. They include new computer hardware and software, delivery equipment, store fixtures and other machinery. If you haven’t made improvements, do so now before you start negotiating the sale. You want the potential buyer to realize you have been investing in your company to stay competitive.
Compiling a list of discretionary expenses, your best trained employees (document annual training) and enhancements you have made (or plan to make) are the first steps in preparing to sell or transfer your business. You’ll be surprised how long this list ends up being and how much value these selling points will add to your company.
Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .