How to Maximize Business Value Before You Sell

Business value reflects the overall worth of a company, determined by its financial performance, operational efficiency, and market position. As a business owner, you may aim to maximize value for various reasons, including:

• Selling the business at the best price
• Raising capital for expansion and growth
• Strengthening financial stability to prepare for economic downturns
• Creating a plan for underperformance, ensuring long-term sustainability

Regardless of the reason, maximizing your business value requires a strategic approach, thoughtful planning, and execution.

In this article, we’ll focus on maximizing business value in the context of a sale.

Below, we outline five key strategies that can significantly enhance your business’s valuation:

1. Securing long-term revenue through customer contract optimization
2. Enhancing product and service differentiation
3. Streamlining operations for scalability and efficiency
4. Designing a seamless ownership transition strategy
5. Positioning your business to attract the most valuable buyers

The first four strategies aim to increase revenue, reduce costs, and improve operational efficiency, providing the foundation for a more valuable business. The final strategy — targeting the right buyers — is a crucial step in the sale process, often executed with the help of an M&A advisor.

Before diving into these strategies, it’s important to first understand how your business is valued.

How to Value Your Business Accurately

There are two primary ways to get an accurate business valuation:

1. Working with an M&A advisor
2. Working with a certified/ accredited valuation analyst

If you’re seeking a business valuation but aren’t actively planning to sell, it may be more practical to work with a valuation analyst. Several types of certified analysts can conduct a business valuation, including:

• Certified Valuation Analyst (CVA), conferred by the National Association of Certified Valuation Analysts (NACVA)
• Accredited Senior Appraiser (ASA), conferred by the American Society of Appraisers (ASA)
• Accredited in Business Valuation (ABV), conferred by the American Institute of Certified Public Accountants (AICPA)

But if you’re already on a timeline to sell your business or committed to the idea of selling, getting a valuation from an M&A advisor is the smarter move. Unlike generic valuation providers, an advisor brings deep expertise of your industry’s M&A landscape, ensuring your business is valued in the right market context. This positions you far more effectively when it’s time to attract buyers and negotiate a deal.

An experienced advisor not only provides an accurate valuation but also maximizes your deal potential by identifying the right buyers, articulating the strategic value of your business offers, and negotiating the best price and terms.

If you’re ready to sell, we can help you find the right M&A advisor.

Whether you choose to work with an accredited valuation analyst or an M&A advisor, it’s important to understand how they will determine your business’s valuation range.

They’ll use three different analyses to triangulate the most accurate value of your business:

1. Discounted Cash Flow (DCF) Analysis

This method estimates the value of a business based on its expected future cash flows. It involves forecasting the profits your business will generate and then “discounting” those cash flows back to their present value using a discount rate. The discount rate reflects the risk and predictability of your business’s future profits, adjusting for inflation to indicate how much future profits are worth today.

To conduct this analysis correctly and justify your assumed growth, base your growth rate on historical performance, industry and market conditions, company-specific factors (like brand strength and market share), and macroeconomic factors.

2. Comparable Company Analysis (Comps)

A comps analysis benchmarks your company’s valuation against similar businesses in your industry, factoring in size, growth, geography, capital structure (including debt levels), and lifecycle stage.

For small businesses, this approach can be challenging, as valuation data is more accessible for larger, publicly traded companies than for smaller, private ones. To obtain an accurate valuation, it’s crucial to select the right set of comparables and adjust for size differences, ensuring a more meaningful and realistic comparison to industry peers.

3. Precedent Transaction Analysis

Precedent transaction analysis values a business based on the prices paid for similar companies in past sales, offering real-world exit valuations. Unlike other methods, this approach accounts for premiums buyers have previously paid, which may include inflated prices from competitive bidding. However, obtaining reliable data can be challenging without the assistance of an advisor or analyst, as most transaction details are kept private.

These three analyses examine key business valuation factors, outlined in the table below. The table also illustrates how these factors typically influence valuation, either driving it higher or lower.

Depending on your exit timeline, some of these factors may be beyond your control when maximizing business value. Next, let’s look at five ways you can influence these factors.

Five Ways to Maximize the Value of Your Business

When you work with an M&A advisor, you have someone on your team who can identify the factors influencing your company’s value and can:

• Advise you on whether a specific method will help increase your value in a meaningful way (i.e., help you achieve your desired exit)
• Market your business as-is to buyers who are most likely to appreciate its value

As mentioned earlier, all but one of the methods listed below focus on decreasing costs, increasing revenue, and strengthening operational efficiency.

Simply put, your goal is to identify and enhance the elements of your company that drive value, while finding ways to optimize areas of underperformance.

Not all of the items below will apply to your specific business, nor will they all have a significant impact on your business’s value. An M&A advisor can help you pinpoint areas for quick improvements while also highlighting longer-term opportunities that buyers may see value in.

For aspects that require more time to implement, your advisor may present them as growth opportunities to prospective buyers. For example, expanding cross-selling strategies in your eCommerce store or entering a new market where your business has strong potential but hasn’t yet established a presence.

1. Optimize Key Customer Contracts

Your customer relationships are the backbone of your revenue — and your business’s value. To maximize your sale, focus on securing long-term agreements, reducing customer concentration, and optimizing pricing & payment terms. This assures prospective buyers of stable, predictable, and timely income even after your exit.

For example, you should:

• Secure long-term contracts with your existing customers. This locks in revenue for a longer period of time and reduces the risk of customers leaving. If you have contracts that are due to expire around your exit date, it’s a good strategy to renew those ahead of the sale. That way, your potential buyers don’t see a risk of renewal with your customer base when they’re considering how to value (or whether or not to even buy) your business.
• Reduce customer concentration. The more customers you have, the lower the likelihood that one customer leaving will have a massive impact on your revenue. As a rule of thumb, you don’t want more than 10% of your revenue to come from a single client or more than 25% from a group of your five biggest clients.
• Optimize pricing and payment terms. Setting the right price is critical—pricing too low can leave money on the table, while pricing too high may limit demand. Equally important are your payment terms, as the timing of cash inflows directly impacts working capital. Shortening payment cycles reduces the funds tied up in operations, improving cash flow and making your business more financially efficient.

This shows prospective buyers that your company will offer stable income even after you step away.

Optimizing contracts is especially crucial if you manage sales relationships with key clients. If you leave, clients might follow a competitor, known as “key person risk.” A non-compete isn’t enough to reassure buyers, so reducing this risk is vital for attracting a wider pool of buyers. (We’ll cover this in more detail below.)

Other Essential Documentation to Prepare Before a Sale

In addition to customer contracts, potential buyers will want to review other documents that reflect your business’s value. This includes:

• Business licenses
• Leases for premises or equipment
• Intellectual property documents (such as patents and copyright statements)

Ensure these documents are free of legal issues and transferrable to the new owner. Without this assurance, your company’s perceived value could significantly decrease in the eyes of prospective buyers.

2. Develop Your Product or Service Offering

To maximize your business’s value, consider improving your product or service. This strategy is most effective with an extended exit timeline. Working with an advisor can help demonstrate the growth potential to prospective buyers. For example, you can:

• Upgrade your product line with new versions or features to stay competitive. Enhancing sustainability or cost-effectiveness can also increase appeal.
• Enter a new market or diversify your product line to attract new buyers, expand your customer base, and reduce risks tied to customer concentration.

As mentioned, these strategies aren’t always realistic for businesses planning to sell soon. Business owners seeking a short-term exit typically won’t want to invest time or funds into launching a new product in their final months.

However, researching development opportunities is still valuable as you prepare to sell. Understanding potential for growth enables your advisor to highlight this during the sale process, such as in the CIM (Confidential Information Memorandum). Including this information can attract buyers and help justify your valuation range.

3. Optimize Your Company’s Infrastructure

Your company’s infrastructure — equipment, supply chains, delivery methods, etc. — directly impacts your bottom line and, consequently, your business’s value.

By reviewing your current infrastructure, you can often reduce costs without committing to major capital investments. For example:

• Negotiate longer payment terms with suppliers to retain cash longer, improving liquidity and freeing up working capital.
• Secure bulk discounts to lower material costs, even if it means larger upfront purchases.
• Diversify suppliers to protect against shortages, supply-chain delays, and minimize risk in buyers’ eyes.
• Optimize inventory to avoid overbuying and paying for unnecessary storage.
• Lease rather than buy equipment and real estate to reduce CapEx requirements, offering more flexibility to potential buyers.

It’s crucial to identify opportunities to reduce costs, working capital, and CapEx needs. These factors are key for many buyers, signaling efficient operations, strong cash flow, and lower financial risk, making the investment more attractive.

4. Create a Detailed Transition Plan

In many small and mid-sized companies, a business owner’s knowledge, relationships, and reputation significantly drive value, creating a “key person dependency.”

If you plan a full exit, addressing this dependency is critical to assuring buyers that the business can continue without you. This often involves:

• Creating a management team to share your current responsibilities, with specialists in finance, sales, and strategy.
• Building time for training into your transition plan to ensure others can take over your responsibilities.
• Giving employees ownership of customer relationships to maintain service continuity.
• Documenting business processes for smooth operations and easier optimization by new management.

A detailed transition plan shows buyers that your business can maintain operations post-exit. Without it, closing a deal becomes more challenging.

Further reading: Business transition planning: 3 phases for a successful exit

5. Boost Your Buyer Targeting & Negotiation Strategy

The value of your business ultimately boils down to what someone is willing to pay for it. To maximize this value, attract as many qualified buyers as possible and gauge their willingness to pay, ensuring you get the best price and terms during your exit.

Working with an M&A advisor enables you to implement a comprehensive buyer targeting strategy, which can significantly increase the final sale price. In our experience, business owners who work with an advisor sell their businesses for 25% more than those who don’t.

When you work with an advisor, this boost comes from their expertise in targeting buyers, negotiating, and structuring deals:

• Advisors leverage a wide professional network to bring your business to more qualified buyers, increasing the chance of finding the right one.
• Advisors choose the best buyer targeting strategy, whether through an open auction or reaching out to niche buyers individually.
• Advisors can create detailed marketing materials that make your business more appealing to ideal buyers. In your investment teaser and CIM, they’ll highlight the attractive features driving value right now and the future opportunities your company could offer.
• Advisors skillfully negotiate, streamlining due diligence, addressing buyer concerns, and securing the best possible deal terms — whether taking the sale price upfront or over time.

Additionally, working with an advisor saves you 30+ hours per week, allowing you to focus on optimizing your business to maximize its value.

Get connected with an Axial Exit Consultant today.

Other Resources for Business Owners Looking to Sell

Whether you’re ready to sell your company and putting together a checklist to help you prepare, or you’re simply researching value to lay the groundwork for a transition, a deeper understanding of the factors that drive your business’ value sets you up to make more informed decisions and build toward a smoother exit.

For more information, we recommend these resources from Axial’s Exit Planning Center:

• Business valuation calculator
• The 1000 day exit plan
• Business valuation misconception
• How to sell your business quickly and avoid common pitfalls