How do I increase value when I sell my business??

As the economic recovery blossoms, the stage is set for a feeding frenzy on privately held companies. You've been working hard, and would love to sell. But, will you get the right price?

If you properly plan for the sale of your business, you can maximize value. Operating as "business and usual" can significantly affect in the negative the value someone is willing to pay. So, what you can you do? Here's some simple steps, that should be taken only in consultation with your lawyer and tax advisors.

First, cut expenses. A sophisticated buyer will look at your company's EBITDA -- earnings before interest, taxes, depreciation and amortization. Often times businesses are valued on a multiple of the EBITDA. Thus, your primary strategy is to maximize earnings. If the multiple is 7x, any reduction in expense is worth 7 times that reduction in a sale. That philosophy, however, is counterintuitive to a strategy to maximize after tax profits. For example, businesses typically lease vehicles or equipment to maximize the expense deductions. Thus, for example, consider a business that  needs a $100,000 piece of equipment. It can rent it for $25,000 per year, or borrow the money, pay annual interest (of say 7%), and depreciate $20,000 per year. By borrowing the money to purchase the equipment, EBITDA increases by $18,000. At a 7x multiple, you're increased the value of the business by $126,000.