“Cash is king.” Perhaps you have heard that before. It’s a popular saying, though nobody knows who coined it or where it came from. Perhaps, like the wheel, it dates back to the ancient Sumerians. The CEO of Volvo, Pehr G. Gyllenhammar, made it popular when talking about the 1987 Stock Market Crash. That phrase, “cash is king," is also part of a larger saying:

“Revenue is vanity, profit is sanity, but cash is king."

Like the wheel, cash makes assets move. It is a basic and fundamental concept, also like the wheel. Cash makes a business move. Cash pays the bills. So, what’s this have to do with a business owner wanting to retire and exit their business?

That business owner needs to adopt the mantra and live religiously by the principle of “cash is king.” Why? Because cash is the number one element that can add value to your business and get you the money you want and the value you deserve. That may sound a bit harsh and cold. But preparing your business to sell requires a change in mindset of how you run your business.

After all, your business provided you with a living, gave you the ability to provide for your family, provided a living and means for your employees and their families. Your business provided a service to your community, one that was and is appreciated and valued. There is value in those achievements. But how do you quantify that type of value? Some call it Goodwill. Some call it Blue Sky. You might as well call it Air. Those achievements are selling points that help sell your business - but they do not add tangible value to your business that can be quantified.

Maximize Value to Sell Your Business

In the end, buyers are not buying your memories. They are not buying what you did, all the blood, sweat, and tears. They are buying the end result of that blood, sweat and tears - but not the process. A buyer is essentially looking at how much cash does this business produce for me to:

• Pay myself, and
• Service debt.

Perhaps the buyer is not relying on your business to provide them a salary, in which case those two things are:

• Service debt, and
• Reinvest in growth.

In order for you to maximize the value of your business you have to start running your business to sell it - not to grow it necessarily, not to provide yourself a living necessarily - but to maximize its value. How do you do that? See the first line in this article. Start living by the principle of “cash is king.” Revenues are great, and make you look good and feel good - “I do over a million bucks in revenue a year.” That’s awesome. Profit ensures you keep the doors open and can pay yourself and your employees. Making more than you spend is only common sense business.

Tip #1: Run Your Business to Show Profitability

“Cash is king.” Buyers look at cash. Banks look at cash. Start running your business to show profitability. Take that cash to the bottom line, which means show it on paper. Increase margins where you can by trimming the fat. Don’t necessarily jump into an expensive marketing campaign you are not positive will increase your margins. Don’t hire an expensive consultant to help you grow. Instead of investing in those areas, invest in the value of the business by taking that amount to the bottom line.

Tip # 2: Pay Yourself

Pay yourself more THROUGH PAYROLL OF THE BUSINESS. This may be contradictory to how you have been paying yourself. One of the easiest ways to increase your cash is to pay yourself a salary run through payroll. It’s called a discretionary cash flow item and is used to help figure the cash flow of your business. There are other discretionary expenses that qualify as cash flow , but an owner salary is often the biggest and easiest way to maximize cash flow and value. It is also living by the concept of ‘Cash is king.” Call me and we can get into the details.

Tip # 3: Understand Tax Obligations

Cash is also king after the transaction is finalized and the tax man cometh to take his cash. So, you have to get with your CPA to discuss how to minimize taxes on a sale of assets. Set that long overdue meeting with your CPA and financial advisor and begin planning on how to minimize taxes and where to invest that lump sum of cash you get at closing. Minimizing taxes and having an investment plan maximizes your cash.

What we sell the business for is important - but what you get to keep after the fact is even more important. Your CPA and financial advisor can help you with this. Begin planning now with your team. Don’t have a financial advisor? Get one. They are everywhere. Do your due diligence and pick one you feel comfortable with.

Tip # 4: Estate Planning

Organize your will and estate. Plan for the sale of your business as if you were not going to be around to enjoy your cash. A will and estate plan is critical as part of protecting you, your assets, and your family. It, too, helps ensure you will maximize the value of your business for not only you, but your loved ones as well.

To wrap things up, write these 4 things down:

• Cash is king.
• Pay yourself a salary, or maximize your salary (through payroll).
• Get with your CPA and Financial Advisor.
• Get with a will & estate lawyer to write down a plan.

All of this is part of adding value to your business. Change your mindset from running your business to provide a living; to running your business to add value to your business. The first and most important part of adding value to your business is living by the concept of “cash is king.”

Revenue is vanity, profit is sanity, but cash is king.