Think back to when you started your business. What were your motivations? The ability to be your own boss? Control your own time? Build things the way you wanted? Make more money than the market was willing to pay you? Whatever your motivation, congratulations on taking that entrepreneurial plunge. Many think about it but don’t actually do it. You, on the other hand, actually did.
And now that you’re in the trenches, you’re probably well aware that small business ownership is equal parts stress-inducing and exhilarating. Or maybe you’ve fully embraced Tim Ferriss’ 4-Hour Workweek principles and are cruising along. Either way, most small business owners agree that they haven’t considered what happens when they’re ready to step away from the business they’ve built.
Let’s say you’ve built this amazing business, and now you’re ready to scale back or retire. Many small business owners aren’t aware just how valuable their business is! You’ve put your blood, sweat, and tears into building it, providing jobs, great customer experiences, and community benefits along the way. Don’t for one minute assume that you should just put up the proverbial ‘gone fishing’ sign and lock the door for the last time.
What you’ve spent your time building can be an extremely valuable asset, perhaps the most valuable one that you’ll have the opportunity to sell. Small business acquisition is an increasingly popular topic, with new buyers entering the market daily. That makes your chances of a successful exit that much higher. For many profitable businesses with sufficient operating history, a sale price in the 2-6 times earnings range is well within reason.
So even if you’re years away from a sale, there are a handful of tips to maximize the value of your business:
Have squeaky clean books
Tracking all of your income and expenses in Quickbooks, Xero, or a similar platform designed for small businesses will make life much easier when it comes to a potential buyer reviewing your business. It’s also important that you don’t have unreasonable personal expenses running through your business. Separating work and personal expenditures isn’t just good life advice, it’s sound bookkeeping advice too.
Add value from your business spending
Let’s say that you have $300,000 of business credit card expenses each year. If you put all of that on your Capital on Tap Business Credit Card, you’ll earn $4,500 cash back (at an uncapped 1.5% cash back rate). But that means you’re chopping out $4,500 of expenses, which flows to your bottom line. Let’s further assume you can sell your business for 5 times profit. That’s over $22K in additional value!
Diversify your customer base
When looking to sell your business, a buyer will be sensitive to customer concentration. If your top customer accounts for a quarter of your sales, who’s to say that customer won’t leave and put the buyer in a tough spot? Reduce customer concentration to prepare your business for your exit.
Don't take your foot off the gas
Many small business owners get burned out towards the end - no surprise there. But to make your business as attractive as possible, you’ll want to show sales and profit growth year over year. You don’t need to be doubling your numbers each year, but slow, steady growth is far more attractive than a step back.
Congratulations again on your decision to pursue your entrepreneurial path. Enjoy the ups, downs, and the overall journey. And remember to keep a little focus on your end game. As always, your friends at Capital on Tap are here for you!
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