Below are steps you can take now to boost the value of your business
1. Increase profitability
The first step to take, so potential investors will understand the value of your business, is to get proof of continued increasing profits. If you can show them your profits will continue to trend upward, you can fetch a higher price. Finding opportunities to increase sales, reduce costs, and create efficiencies leading up to a sale will demonstrate an extra profit boost and impress buyers. Obtaining a short-term business loan can help expand your operations, boost profits, and increase the sales price for your business.
2. Create streams of recurring revenue
Find ways you can increase sales and revenue, especially recurring revenue, that will generate income for the new owner - right from the ‘get go’. This may include shoring up any pending customer or vendor contracts, giving the new business owner peace of mind that they will have consistent revenue flow as they get accustomed to running their new business.
3. Establish and document processes
When you Institute and document regimented processes, which enable the company to function effectively without your involvement, you will make buyers feel at ease. This can certainly increase the value of your business. Potential investors need to be convinced that long after you’ve made your exit, the business will continue to thrive and run smoothly.
4. Cultivate a high-quality workforce
Another way to increase the value of your business is by hiring top-notch employees. New owners don’t want to deal with employee turnover, especially when they’re new to the business. Experienced workers bring balance and stability and help to generate profit. You can increase your company’s worth by actively cultivating a high-quality workforce.
5. Position your products or services to stand out in the market
Businesses with differentiated products and services are uniquely positioned to dominate a part of the market. They have an advantage over their competitors and therefore, can command a higher price. You can do this by developing and promoting any intellectual property, patents or other unique feature of your products or services.
6. Identify and highlight tangible and intangible assets
It is essential to list and price all physical assets of your business, including furnishings, fixtures, equipment and inventory. But also consider the value of your intangible assets—things like contracts and agreements, customer relationships, brand recognition, and more. Every non-material asset that contributes to your company’s profit line has the potential to boost its price.
7. Mitigate your risks
Put yourself in the buyer’s shoes. Do whatever is possible to enhance your company’s value. Are your financial records accurate and up to date? Is your facility looking its best? Are there any loose ends that you need to tie up before you list your business? Increase the value of your business by giving buyers what they prefer a business that comes with low risks and high rewards.
The best part about learning how to increase the value of your business is not only that you are prepared to sell it. As an added bonus, your sales and profits will increase right now. When you put time into shoring up the different elements that make your business stand out, it only becomes more stable, which will help your business command a higher price.
8. Develop a Diverse Customer Base
Buyers typically look for a customer base in which no single client accounts for more than 8-10% of total sales. A diversified customer base insulates your company from the loss of a major customer. For example, if your three top customers generate 25-40% of your sales, a buyer will be concerned that one or more of them would leave upon learning that you sold your company. To a lesser extent this may also be a concern to inside buyers if the biggest customers are loyal to you, rather than to the company or other employees. Customer concentration then, is a risk factor to be avoided regardless of the exit path you choose.
9. Improve Cash Flow
Ultimately, all value drivers contribute to good and increasing cash flow, and buyers look for companies whose cash flow is increasing year over year. For example, compare two businesses, each experiencing $6 million of cash flow over the last three years. One company’s cash flow was $1 million three years ago, $2 million two years ago and $3 million last year. The second company had $2 million of cash flow in each of the same three years. Which company is worth more to buyers? The company with growing cash flow. Its track record of steadily increasing revenue can be convincingly projected into future, post-sale growth.
10. Demonstrate Scalability
A scalable business is one in which profit margins increase as revenues increase. Profit margins increase because costs do not rise in lockstep with increasing revenue. For example, and speaking from personal experience as an attorney, most professional service firms, are not highly scalable because their revenues are based on an individual lawyer’s billing rates. To increase revenue, increase the number of lawyers; in other words, costs rise in tandem with revenue.
Compare that to a business that licenses software to that same law firm—the cost to produce the software, once created, is almost nothing. The additional licensing revenue it receives increases revenue, profit margin, and cash flow.
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