Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Five Easy Changes to Create Value in Your Small Business

A handful of questions to begin – Are you thinking of selling your small and medium-sized entity (“SME”)? Is your largest asset in your estate your business? Are you the CEO, CFO, general manager and sales force of your SME? Do you fear going on a two week vacation because of the number of phone calls you will receive from employees asking questions regarding operations? If you answered ‘yes’ to more than one of the questions above, these tips could help you add value to your SME before you sell your interest.

  1. Begin by documenting your daily responsibilities and put them each in a logical category. Next, begin to identify current activities for which you are responsible and can be delegated to other employees. Take time to train the employee and trust them to perform the work. Don’t forget to increase compensation in situations that warrant an increase.
  2. Begin to identify key personnel that if lost, revenue and earnings would be impacted. Once identified, begin to develop procedures or processes that introduce other employees into the process in order to reduce the impact if the key employee left your firm.
  3. Begin to maximize earnings instead of minimizing taxable income. Of course buyers can add back discretionary, non-operating expenses to the earnings stream when they analyze your business, but too many adjustments intuitively add risk to the SME and therefore, decrease the potential purchase price of the business.
  4. Start to develop new markets and/or new revenue streams in order to show growth in revenue. Buyers are looking for high growth companies to purchase or SME’s that outperform their peers regarding growth. All things being equal, higher growth companies receive higher purchase prices.
  5. Begin to forecast the next four quarters of revenue and expenses. Identify key performance indicators that will assist you in developing your revenue forecast. Maybe your industry correlates well with another industry. In that case, research both industries in order to gain an understanding of what the future holds for each industry. Be sure to compare actual results to forecasted results in order to improve your forecasting process. Many business owners have no vision of their future. At a minimum, creating a forecast will begin the thought process of how to improve marketing or operations to achieve the forecasted earnings.

Use these tips to your advantage.

By Michael R. Metzler, CPA/ABV, CMA, CGMA, ASA