Wondering how to sell a small business? Three ways to groom it for maximum value.

maximize the value of your small business

For many – if not most – small business owners, the biggest “chunk” of value they have is their business. Often small business owners look forward to cashing out someday with hopes to retire or perhaps start another venture.

However, it’s easy for small business owners – who have been so intimately involved in the growth of their companies – to suffer a huge letdown when someone slaps a price tag on their “baby.” Waiting to the last moment isn’t how to sell a small business and expect to get its highest value.

I want you to consider three specific areas that will bring down the value of your business, no matter how impressive your yearly revenue looks. If you give these areas some attention, not only will it increase the value of your business when it’s time to sell, it will increase your revenue and safety in the meantime.

1. Little or no recurring revenue

There are few things more valuable to a small business than a steady flow of recurring revenue. Being able to automatically charge a client’s credit card every month or year boosts the value of your company. It also lowers your overhead because you don’t have to be working your tail off for those sales.

Do you have any revenue streams like this? If they are in place already, give them more attention so they grow even bigger.

2. Revenue overly concentrated

If you have one or two big clients who contribute to your profits in a major way, it pulls down the value of your business. We’ve all seen the movies where a major New York firm is about to lose its biggest client. Everyone goes into panic mode.

No one wants to buy a business where panic mode is just one lost client away – or at least they won’t pay top dollar for a business like that. This certainly isn’t how you want to sell a small business.

Look at your list of customers or clients. Do just a handful contribute the lion’s share of your revenue? If that’s the case, you need to find ways to diversify your clients. It might mean being more creative in finding new clients or maybe you need to branch out into a related area that would bring greater diversification with it.

3. Your business depends on one person

If there’s a key individual in your small business who keeps everything going, who’s the keeper of the “secret sauce” – and this might be you – that makes buying your company a risky venture and it pushes down its value.

If this isn’t you, then perhaps your key person is the logical buyer for your company. This person may be your best shot when you consider how to sell your small business. If that’s the case, you need to start planning a sale in plenty of time. If you don’t, this person could take his or her knowledge and leave if there’s no future in your company.

If this person isn’t going to buy your company, they you need to make him or her less mission critical to your operation. There are a variety of options to give yourself and potential buyers insurance against this problem. You can cross train, develop systems, create training modules, bring in others with similar abilities and more.

Finally, these are all good management practices even if selling your business is in the distant future. If you start working on each of these three points, you business will become more efficient and able to run with less direct supervision from you.