We talk about value drivers quite often, what about value killers?

We’ve been discussing value building quite a bit as do most business related sites, the news, etc. etc. One topic that business brokers know from experience aside from value drivers are the steps that business owners take to put more cash in their pockets that could hurt their pocket books at the time of sale. Documenting income and being proud of it is a little different mind set when contemplating a sale. You’ll want to secure the highest multiple of discretionary earnings (EBITDA – Earnings before interest, tax, depreciation and amortization) and in order to do that you’ll have to show discretionary earnings and where they are in your books to potential buyers.

[FOUR MAIN issues that are killing the value of your business:

• Minimizing taxable income – we all know that small businesses are designed to minimize taxes, however, if you are wanting to sell in the next 3 years start moving every penny you can to the bottom line. Any and all discretionary expenses that you are running through the business needs to be very well documented.
• Lack of diversification – Having “all your eggs in one basket” is too risky for the buyer. If you want to sell at a premium, you must have a diverse group of clients where no one customer makes up more than 10-15% of annual revenues.
• Poorly kept books – This is the most obvious to any buyer. Buyers want to see growing sales and positive cash flow (see minimizing taxable income) that can fund operating and financing costs right from the day of purchase. Company books are a direct representation of the business health.
• No systemized processes – Well documented policies and procedures need to be in place show a well run and organized company. ]

(content from Heather South, CMSBB http://sunbeltnashville.com)

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