1. Build a solid management team. A company with sales of $5 million and up needs a full quiver of officers and directors. Such a team might include: a CEO, a CFO, a COO, a sales manager and, depending on the type business, a CIO.  It is also beneficial to create a Board of Directors with at least two outside board members. This professional management team can remove the stigma of “the one man band” that many New York businesses have. Not only will this build a stronger company, it will increase the value to a possible acquirer. Smaller firms should also build a strong management infrastructure, and creating an outside advisor group might also be a good idea.

2. Groom loyal employees.  Happy and loyal employees make for a strong business.  Top management should have no-compete and/or confidentiality agreements.  In addition, good benefits plans for all employees should be in place. A company’s greatest asset is its employees (and perhaps its biggest value-increaser for potential buyers).

3. Encourage growth. Some smaller companies are kept small to maximize the owner’s benefits – the proverbial “cash cows.” However, if building value is the goal, then developing new products or services, building market share, expanding markets or opening new ones, must be a priority. This generally requires a financial investment, but building a strong growth rate also builds value that will add to the sales price of the business.

4. Understand your market. The value of a company may be contingent on its market segment, its place in the industry and the direction of the industry itself. How big is the industry?  Is it headed up or down?  Who is the competition?  How big is the company’s market share? Is it time to change direction or diversify?  Does the business need to focus outside of New York City?

5. Size counts. In New York, companies with less than $5 million in sales and an EBITDA of less than $1 million are usually perceived as small. Therefore, they may be dependent on continuing outside financing and lack the critical mass for both buying and selling power. These companies can be perceived as too small for acquisition or might sell for a lower relative value. However, over the past few years corporate buyers, as well as private equity firms, have seen the advantages of purchasing smaller firms. Obviously, companies with $10 million or more in sales and an EBITDA of $1 million or more are considered solid and able to stand on their own.

6. Change directions.  Small companies can be very good at changing course and implementing change. They have to be able to change and move quickly to take advantage of new markets, to fill voids in existing markets and even to add or change products or services.

7. Document everything. Business plans, financial plans and personnel plans should all be in writing and frequently updated. Terms of employment agreements should be spelled out in writing. Business planning and company objectives should also be in writing and reviewed periodically. Contracts should be reviewed and maintained on a current basis.

8. Diversification. A major problem with many small companies is that their business is concentrated on a handful of large clients. Ideally, no customer or client should represent more than 10% of total sales. Expanding to new markets, introducing new products, and finding new customers must be considered without deviating too far from the company’s core business.

9. Build name and brand identity. Nothing beats the name Walt Disney, or Kleenex® or the soft drink called Coke® – they are household names. Small firms may not have the brand or name recognition of these companies, but they strive for it. This recognition is especially powerful in the consumer product area. But franchising has expanded this name or brand recognition to many different types of businesses.

10. Take advantage of proprietary. Patents, alliances, brand names, copyrights, and joint ventures are all examples of not only proprietary assets, but, in many cases, valuable ones. Even equipment can be used in several different ways. Large landscape companies in cold climates put snowplows on their trucks, utilize their existing workforce and become a snowplowing company for their regular landscaping customers.

11. Be “lean and mean.”  Many companies lease their real estate needs, outsource their payroll, have their manufacturing done offshore, have UPS handle all of their logistical needs. Since all non-core requirements are done by someone else, the company is able to focus its efforts on what they do best.

12. Do it now! The owners of small firms, and even large ones, have an attitude that says “I don’t have time now, I’ll do it tomorrow” or “I’m too busy now putting out fires.” So the real challenges of building the business, and value, get sidetracked or put off indefinitely. Creating value is critical to the long-term (and short-term) success of the business.

Keep in mind that the best time to consider selling your company is when business is good, the business is running profitably, and many of the above “value-adders” are in place. Contact us and we can explore which of the above will add the most value to your firm, so it will be ready to sell when you are.