Increase the Value of Your Business

If you’re thinking of selling your business in the near future or you’re just a smart business owner that is looking to increase the value of your business, here are five things you should do to increase the value of your company.

Diversify 

Customers - while having “strategic customers” you’ve developed deep relationships with is a good business practice, having a select number of customers who comprise the majority of business is risky. If a customer makes up more than 10% of revenue, this will likely cause potential buyers to discount the value of your business. The risk of one or more of these “strategic customers” seceding the relationships, particularly after you leave the business, will materially impact the value of your business. 

Products – Ensure revenue is derived from multiple product lines and or services. Having a single revenue drive is a risky business practice and one that will force potential buyers to include the risk into the valuation. 

Recurring Revenue

You can increase the value of your company by generating consistent revenue. Look how Spotify charges a monthly fee to “lease” music to its users or Salesforce charges a monthly fee for its CRM system. How can you implement features like these into your business? When acquirers evaluate revenue, stable and recurring revenue from contracts is valued higher than one-time revenue.

Invest

If you are considering exiting your business, by no means does this mean stop investing in Capital Expenditures and or ceasing to make other growth investments. Demonstrating to acquires that your company is primed for growth is a sure-fire way to increase the value of your business. 

Evaluate 

What key performance indicators (“KPI”) are good barometers for analyzing the health of your company? These metrics should be monitored monthly, quarterly, and annually. Putting financial metrics together can be a lengthy process when first identifying what is relevant to your company. However, with the repetition of quantifying the ratios and metrics and knowing which indicators are relevant to your company, you will be able to track your performance efficiently. 

Consider having a valuation performed annually. Having an annual valuation will give you insights into how your company is performing and project its future trajectory. With this information in hand, you can make better strategic decisions, gain higher leverage during mergers and acquisitions, evaluate risk more efficiently and effectively, and overall run a better and more informed business. 

Be Unique

Frequently, I hear owners say their competitive advantage is customer service or price. If everyone says customer service is their competitive advantage, it is difficult for me to believe it is a differentiator. Further, while Walmart can say that price is their competitive advantage, for small or medium-sized businesses, this is not a good practice. Having high margins is a good thing for the value of your company. 

If you can position your company differently from your competition, you will have a stronger case for using higher valuation multiples, thus increasing the value of your business. Moreover, if you create a process or technology that others in your industry don’t have, then you are increasing the overall attractiveness of your business; this makes it easier for you to attract quality buyers.