Ten Steps to Make Your Business Worth More to Buyers
In pricing a business for sale, we usually look at a multiple of cash flow or seller’s discretionary earnings for the industry of the business we are valuing and arrive at a sales price. But what if I told you there was a way to maximize your business’ value and receive more than your industry peers?
Here are 10 value-building strategies.
Recurring Revenue: The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Think of ways to implement service contracts or devise automatic reorder of your product.
Something Different: Companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry. Work to differentiate your business.
Growth: Acquirers looking to fuel their top-line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall.
Update: Tired, old companies often find it hard to significantly update their brand and will try to buy sex appeal through the acquisition of a trendy, young company in their industry. Innovate and stay in the forefront of your industry.
Location: If you have a great location with natural characteristics that are difficult to replicate, you’ll have the buyers who understand your industry as interested in your location as your business. Often, the ability to reproduce a unique market place or location is difficult.
Diversity: Ensure that no one customer accounts for more than 15 percent of your revenue, and your company will be more valuable than an industry peer that has just a few big customers. Determine your most profitable product, service or type of customer and concentrate on gaining new customers in that arena.
Predictability: If you’ve mastered a way to win customers and have documented your sales funnel with a predictable set of conversion rates, your customer-acquiring formula will make your business more valuable to a buyer.
Clean Books: I mention this all the time, but a good set of financial statements is critical to achieving more value for your business. Smaller companies that invest in accountant-prepared financial statements and larger companies that have audited statements are generally viewed as more trustworthy and are therefore worth more to an acquirer.
Management: Companies that have a second-in-command who is willing to stay on with the business after the sale produce more value than a business where all the knowledge and expertise will be leaving the business with the owner upon the sale.
Happy Customers: Being able to objectively demonstrate through surveys, reviews or other means that your customers are happy and intend to repurchase from you or refer your business to a friend or colleague in the future will make your business more valuable.
As with many things in life, you really only have one shot to make a great impression when selling your business. The above strategies and 25 others are known value builders for a business. Business owners need to plan ahead for their exit strategy and implement systems within their business so when it is time to go to market, they can maximize its value.
Most strategies take up to a year or more to develop and track the positive results. Start now, be proactive and realize a great financial success when the time comes to sell your business. If you’d like more information on utilizing a proven Value Builder System for increasing your business’ value, please give us a call.
Tim Dalton is president of Integra Business Brokers and has more than 19 years of experience in the Augusta area assisting business buyers and sellers. He is also a Certified Business Value Builder. Additional services include targeted business acquisitions, business valuations, and financing assistance. Dalton is a licensed Real Estate Broker in Georgia and South Carolina and can be reached at 706.650.1100 or at firstname.lastname@example.org. Visit Integra’s website at www.integrabrokers.com.