Whether you’re looking to sell your family business, gift it to the next generation, or otherwise, knowing and increasing its value is key to preserving the years of hard work and dedication that have gone into it.

So, how do you increase the value of your business?

Here are 6 ways you can do just that:

1. Seize growth opportunities.

As opportunities arise for new business, seize those opportunities! Buyers, next gens, and future leaders like vibrant, growing businesses. Many owners accidentally make the mistake of stifling growth, not wanting to take on additional responsibilities or risk. This inactivity is counterproductive to a maximum business value.

2. Reduce discretionary expenses.

Many owners are liberal with company expense accounts, not always observing the fine line between business and personal expenses. There may be children or spouse’s payroll, boats, airplanes, trips, etc. in the business expenses. Don’t expense any unnecessary or non-business related expenses to the company!

If there are outside expenses that must be paid and you must have additional compensation to meet those expenses, a better solution (even though it means higher taxes) is to increase your owner’s salary and pay those expenses from personal funds.

The reason we suggest extra compensation, even with the tax ramifications, is that most buyers add back owner’s salary and bonuses to cash flow projections to determine price.  Providing a full list of the extra, non-business benefits and discretionary expenses does not produce the same result. These expenses create a lower value for your business. You are much better off to stop charging discretionary expenses to your business.

3. Keep facilities, equipment and vehicles in tip-top shape.

You wouldn’t judge the value of your used car without a wax and polish job. Don’t determine the value of your business without one either! The more turnkey an operation, the higher the value. Conversely, the more dollars a buyer or next leader must invest to bring a company up to their image standards, the lower the value.

4. Reduce payroll by encouraging early retirement.

We often find owners with long-time, very highly compensated employees. Too often, these senior employees are marginally productive and serve as a double liability to a future owner. The double liability occurs because the selling company’s profits are lower than they should be, which negatively impacts business value, and a new owner knows they don’t want to keep that person on but gets concerned with the impact firing that person would have on customer retention.

The solution is to help them retire early. We often find that senior employees want to leave but think they should help you by sticking it out until you step away. Early retirement is good for them, good for your bottom line, and increases your business value.

 5. Use RFPs and bids to lower major vendor costs. 

By the time many owners get to retiring, they are often tired of negotiating. The last three years in business, however, are the most important when it comes to cost reduction. Reduce as many costs as you can through Request for Proposals, bidding, and negotiation. From employee benefits to office supplies, it pays to bid and shop. Lowering your ongoing expenses means achieving a bigger bottom line profit, which will translate to an increased business value. Even if you aren’t preparing to step away, starting this habit now will continue to increase the value of your business.

6. Clean up your balance sheet. 

Pay close attention to balance sheet management, putting your emphasis on receivables collection, inventory turn, and debt reduction. You’ll be glad you did, when you get an updated valuation and see the difference!

So, whether you’re looking to start stepping away or just wanting to increase your company’s value right now, these 6 steps will put you on the right track.

When you’re ready to get a baseline for what your business is truly worth, start with a Precision Business Valuation from Meridian, the trusted advisors for hundreds of family-owned businesses across North America.