Buyers of a business need to like your industry and like your business. What is going on with your industry and market? Is it growing? If not are you focused on the most profitable part of it? People want to see, at a minimum, stable free cash flows. Ultimately, to get the best valuation on your business you need to show growing free cash flows. Everyone likes growth. Even a little growth every year can be enticing. Free cash flow is the money left over after you've paid all your operating costs and taxes. This is the profits. If you aren't profitable or your profits are falling a little every year then your number one priority is to turn that situation around. There are only three ways to do it.
1) Increase your revenues while you maintain your costs
2) Decrease your costs while you maintain your revenues
3) Decrease your costs while you increase your revenues (best approach and hardest to accomplish)
To read how important this is to do, here is an article on valuation.
How Transparent Are Your Finances?
The numbers you use have to be believable. It is very important that the numbers are transparent to outsiders. This means that your books follow accepted accounting rules and it is noted who is paying you and who you are paying. Your numbers come from your operational accounting, usually this is what you keep in QuickBooks or your day-to-day accountant keeps for you. Your tax filings probably will not be enough information. People are buying your business and not your personal finances. What you make is not what they will make from your business.
If your accounting books are a mess then people won't trust them. Think of poorly kept accounting as a giant dent in the side of a car. Anyone looking at the dent is going to wonder what other damage happened to the vehicle. If your books are a mess, here is an article on getting this corrected.
How Easily Transferrable Is Your Business?
Someone purchasing your business doesn't want a hassle. Is it very clear and straight forward who owns the legal company (the Inc.), the assets of the company and the customers of the company? They better all be under one roof. Are all debts and liabilities of the company in writing and clearly stated? Official bank loans are fine. Paper IOU's are not. Are all of your key partnerships open to new owners and easy to work with? Most companies rely on lawyers, accountants, suppliers and various vendors to operate day-to-day. Are you in good standing with these companies and will they "play ball" with someone else?
If you are working directly in the business are you paying yourself a realistic wage. In other words how much would it cost for you to replace yourself with an outside manager? An outside person is going to look at this scenario so you should keep it in mind. Most people aren't looking to buy themselves a job.
How critical are you to the operations of your business? Are you easily replacable? If not then you need to work on getting to that point or there needs to be a clear and logical way for you to transition yourself out as the new owners take over. Can you deligate more of your work to others and give them more authority and responsiblity? It will cost you little in money and help you immensely to get to a sale.
Start Researching and Watching Your Industry
Watch your industry and get the details on any sales. Talk to the parties that sold and bought. You want to know the value on assets, cash
It is very difficult to assess "fair market value" for a business overall outside of asset value and free cash flows. There is the value of assets like land, buildings, plants and equipment. In all these cases you can look at what something was paid for and look to see what potential present value is. This can get complicated so use simple accounting formulas and strategies to apply appreciation (if any) on land and buildings and depreciation on equipment. This is balanced against debt and other liabilities used to purchase land, buidings and equipment. There is the future value of your free cash flow. You get some multiple of the free cash flow. This can be as little as one times revenues or 5 to 7 times. This will be the biggest point of final negotiation.
In very limited cases, there could be intellectual property such as patents, trademarks, special processes or custom machinery. This is very difficult to put a price tag on. There is "goodwill" - possibly this is your brand value. Once again this is very difficult to put a price tag on.
Stick with assets and cash flow and negotiating a price should be achievable. With intellectual property and "goodwill" minimally look to recover the costs of those programs. This would be the legal and filing fees for intellectual property and the spend on marketing (not sales) programs for the last year. If you have something exceptional then it should increase the multiple on your free cash flow.
Start thinking and planning now. You'll enrich yourself for the work.