Four keys to maximizing the sale price of a business.
BY MARK WARDELL

My client wants to sell her business in a couple of years. How can she convert her business’s personal goodwill into business goodwill to maximize the sale price?

Goodwill is a major component of the value of a business and forms the better part of its owner’s “profit” when it’s time to sell. Personal goodwill is the portion of that value associated with the owner’s name, reputation, contacts, skills, and abilities. Unfortunately, it is extremely common to find that the majority of a business’s goodwill value is linked directly to the owner and therefore tied up in un-sellable, personal goodwill.

The great news in your client’s case is that she has time to do something about it. She needs to start thinking like a prospective buyer, seeing the business as an investment. The buyer’s return on investment and perception of risk are the primary factors impacting how much he or she will pay.

When it comes right down to it, a typical buyer has four major concerns: transparency, profitability, sustainability, and growth potential. In addressing each of these concerns you will put your buyer’s mind at ease and maximize your client’s potential sale price.

Transparency

First, consider the transparency of the business from a buyer’s perspective. Transparency is best seen in squeaky clean financials. As you begin the process of normalizing the financials, I recommend that you provide your client with a review engagement.

Profitability

Second, consider the profitability of your client’s business. The process of normalizing the income statement will undoubtedly result in an increase in bottom line profitability. One way to reduce expense and improve efficiency is to come up with one idea for reducing each expense listed in the Chart of Accounts. Even seemingly fixed expenses can often be reduced with a little out of the box thinking. For example, if your client buys materials from a supplier on an as needed basis, she may be able to negotiate a discount by agreeing to buy a minimum volume over a 12-month period.

Sustainability

Sustainability is a key concept for helping your client turns her personal goodwill into more transferable business goodwill. She can do this by incorporating systemization into all aspects of her business. If your client documents all aspects of operational work flow, a buyer can measure with confidence expected levels of productivity and related factors. From a buyer’s point of view, a sustainable business is one that can run efficiently without the daily involvement of the current owner. See my column in the January-February 2008 issue of CGA Magazine for four business tools to use in the systemization process.

Growth potential

You can help your client show a prospective buyer that he or she is acquiring a vibrant company with a future by recommending she create a simple one- to two- page document outlining the plans and potential of the business. This, combined with the other documents demonstrating profitability and sustainability, will help put a buyer’s mind at ease when it comes time to make an offer.