Profit First: How This Book Can Help Increase the Asking Price of Your Business Sale

Profit First: How this Book Can Help You Increase the Asking Price of Your Business Sale

Net profit is arguably the biggest driving factor in determining the asking price of a business sale. It tells the owner and potential buyer how much money they can make from running that particular business. This number will be used as part of the buyers decision making process, especially when considering their ROI. 

While there are other factors to consider when setting an asking price for a business sale, such as stock, equipment, trademarks, goodwill, etc…  it all starts with the profitability of the business. 

If a business is not breaking even, there are minimal wages to a working owner, the balance sheet and P&L are showing very little growth year on year - the asking price of a business sale is greatly affected. 

To increase the asking price when selling a business, owners should develop a solid exit strategy and prioritize profit, and that is where the book "Profit First" by Mike Michalowicz could help business owners to maximise their sale price.

This book presents a unique approach to managing the finances of a business and argues that traditional accounting methods are flawed. Michalowicz suggests that business owners should allocate profit first and then operate the business with the remaining funds.

In essence, the "Profit First" system involves setting up multiple bank accounts and allocating funds to specific purposes such as profit, owner's compensation, taxes, and operating expenses. By prioritizing profit, business owners can ensure that they are taking home a portion of the revenue they generate and not just using it to cover expenses.

This system can be beneficial for business owners who are looking to sell their businesses. The system helps to increase profitability, which is an important factor in determining the value of a business. When buyers are evaluating a business, they typically look at the financials, including the profit margin, revenue, and expenses. 

By implementing the "Profit First" system, business owners can demonstrate to potential buyers that they have a solid financial foundation and are maximizing profits. This can help to increase the asking price and make the business more attractive to buyers.

Following this system can also help business owners develop a solid exit strategy. By knowing exactly where money is being allocated, it is easier to transition a new owner into the business. By prioritizing profit, business owners can ensure that they have built up a cash reserve, which can be used to finance their retirement or other business ventures. This can help to ensure a smooth transition of ownership and increase the chances of a successful sale.

If you are looking to sell a business, its important to focus on maximising your profits 6-12 months in advance. Selling a business that is on a decline will never receive an optimum sale price, if your business is well established and stable you can still fine tune your operations and maximise that dollar figure. Remembering, a higher net profit is generally a driving factor for the business's asking price. 

By prioritizing profit, business owners can increase the value of their businesses and develop a solid exit strategy. This system can help to ensure a smooth transition of ownership and increase the chances of a successful sale.

Tags: profit growth exit strategy selling

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