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Time to sell? Do your homework first

August 30, 2007|Karen E. Klein | Special to The Times

Dear Karen: I'm looking for a buyer for my company. How do I know how much to ask for it, and what can I do to raise its value before I sell?

Answer: A thorough business valuation takes into account many factors, including the company's income, assets and industry. To get a solid fair market value, hire an experienced business appraiser.

To get a ballpark figure, find an appraisal calculator online. BizBuySell.com has a free valuation tool that enables business owners to get estimates based on comparable businesses by geography.

In terms of boosting value, it's important to create a stable and motivated management team, said John Brown, president of the Business Enterprise Institute. "Establish an incentive compensation system, cash- or stock-based, that rewards key employees as the company performs," he said. "If a strong management team doesn't exist, it will be very difficult to sell your business to a third party or transfer it to an insider."

Diversify your customer base. "Buyers will be looking for a customer base in which no single client accounts for more than 10% of total sales," Brown said. Buyers won't risk purchasing your firm if you have just a few big customers that could vanish at any time.

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Consult customers before price hike

Dear Karen: Should I raise prices? I'm afraid of alienating customers.

Answer: It depends on what you're selling, said Aaron Chaitovsky, partner and certified public accountant at Citrin Cooperman & Co. in New York. "If you're selling a commodity, you're locked in," he said. "But if you're selling a service, or a noncommodity product, maybe."

Most companies raise prices when their costs go up, and their clients usually understand. "Some entrepreneurs are afraid to talk to their customers about prices because they don't want to stir things up. That's misguided. You want to show your customers that you're interested in satisfying them and meeting their needs," Chaitovsky said.

But don't ask for their opinion. "If you ask what they think, you're admitting you don't really need to increase your pricing," he said. "Make them understand that you must raise prices in order to stay in business."

If your customers believe you are focused on their needs, most will pay a little more to continue doing business with your firm.

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Create strategy for website redesign

Dear Karen: We're starting a website redesign. What are some pitfalls we can avoid?

Answer: Get an Internet strategy in place for your company before concentrating on the look of your new site. What are your top goals? Are you primarily hoping to increase sales, establish your brand or bring more traffic into your store? "A good site design starts with strategy and finishes with art," said Erin Presseau, strategic interactive manager for SilverTech, a website development and marketing agency based in Manchester, N.H.

Keep the technology simple and organize the site with your customers -- not yourself or your employees -- in mind. "Different audiences use the Web and search sites differently, so provide a variety of ways for people to get at information -- by category, interest or location -- but don't overwhelm them," she said.

Don't lowball your budget. Overhauling a website and testing it takes time, money and professional resources. Finally, don't launch the new site on a Friday. "Invariably, something will go wrong over the weekend when no one's around to handle it. Unveil your new site on a Monday or Tuesday and prepare your staff to deal with unexpected developments," Presseau said.

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Got a question about running or starting a small enterprise? E-mail it to karen.e.klein@latimes.com or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012

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