Whether you’re looking to cash out now or planning a long-term exit strategy, a business valuation can offer an accurate calculation of your organization’s total worth. Like any business owner, you want to ensure you’re getting top dollar for your business and all of its assets when the time comes.
As with any company, you might discover there are risk factors that are contributing to financial loss or bringing your value down. While certain risks, such as the economy in which your business operates, are out of your hands, there are other factors that you can change to work in your favor.
Playing it safe with business risk
What are the risks in your business, and what can you do to reduce them? Before starting the valuation process, here are some ways your business can minimize risks to a potential buyer, improve finances and increase the overall value of your organization.
- Stabilize your growth and earnings. Hefty fluctuations in year-over-year revenue are a sure-fire way to scare off buyers. Implement a plan to stabilize earnings and rate of growth over time to demonstrate your sustainability and staying power.
- Diversify customers and suppliers. Does your business depend on much of its revenue from a single customer, or count on critical product components from a single vendor? To soften the blow of a major loss, develop your customer base and source alternative vendors for important purchases.
- Ramp up your retention efforts. As key employees stay with your organization over a long period of time, your business can operate with less owner involvement, which can be attractive for potential buyers. To create a turnkey organization, you should incentivize your best employees to stick around.
- Keep comprehensive accounting records. Your company’s books and records should be as thorough as possible to convey the full financial narrative of your business. This can help prevent any slip-ups or surprises that could come back to haunt you when your business is on the market. Consider an outsourced CAS solution to maximize your efficiency.
- Carefully document policies and procedures. Documentation makes for a smooth transition for a new owner, and it’s also another way to maintain transparency. In the meantime, your business will benefit from increased efficiency and improved customer satisfaction, with standardized processes across the board.
- Get patents and trademarks on your proprietary information. By legally safeguarding your intellectual properties, you can help ensure that your products and services can’t be replicated or stolen by the competition, instantly giving your business more value.
When you know the risks that are affecting your business, you can better understand their impact on its value. At NJ CPA firm Magone & Company, we can help uncover your risk areas, and determine what can be controlled or mitigated to your advantage. Contact us or call (973) 301-2300 to learn more.