Simple Tips to Increase the Value of Your Business
Value is the wiliness to pay for something. To increase the value of your business it is imperative to display it in the best possible light. By following the tips below, you will be able to increase the value of your business.
Document Processes and Procedures
The processes in your business need to be repeatable, teachable, and traceable. If your business cannot function without you, you will have a difficult time finding an acquirer. Ensure processes and procedures are mapped out and document. Not only will this make your business more attractive but also support you during the due diligence process.
Many businesses have a concentration of responsibilities with the owner, thus constraining the fluidness of processes. This ideology and practice will decrease your valuation. An organization that can be turned over to a buyer and does not require the seller to keep working in the business is worth more. If the owner holds all the responsibilities, it alludes to the fact the management team is not trusted or incompetent to perform daily responsibilities. Highlighting the importance of this issue, in many cases, a company having a strong management team is the most valuable factor in the success of any given business transition.
Develop a Strategic Plan
Attractive businesses have a well-thought-out and documented strategic plan. A strategic plan gives outside parties the confidence that the owner knows where the company is going and how it is progressing. It also alludes to the detail and thought process for which the company has followed to get to where it is today.
Ensure Key Employees Will Not Leave
A company’s greatest asset is its people. Train, motivate and empower your people (particularly the management team). Ensuring key employees are happy and will remain with the company for the foreseeable future will increase the value of your business, especially for companies with minimal tangible assets.
Clean up
Much like selling a house, before putting your business up for sale, make your business visually appealing, whether that is painting your facility, cleaning up the shop, or enhancing your website. These small changes can alter the perception of buyers when they first consider purchasing your company.
Reduce Personal Expenses
It is common knowledge there are “gray areas” as to how you can lower your company’s taxable income with personal expenses. While it is not difficult to prove to potential buyer’s personnel expense add-backs, it will raise the question of “what else is below the board.” The buyer is going to have doubts during the process, do not give them any further reason to question your financial statements and historical performance.
Generate Sustainable and Scalable Cash Flows
Cash flows are the number one factor that potential buyers will look at the determine the valuation. Buyers calculate the value of a business by projecting future cash flows and assessing the risk associated with generating those cash flows. If a company has a proven track record of sustainable or growing cash flows, it validates the product or service and the management team’s ability. Buyers are willing to pay more for further growth. While historical financials are important as they provide insight into the possibility of what is to come, projections, with justifiable support, are most important. Prepare or hire someone to prepare your financial projections.
Hire a Professional Ahead of Time
Whether you’re considering selling your business this year or in five-plus years, hiring a professional is the best way to increase the value of your business. Research has shown that business owners who use a valuation service before selling their business receive 20% more for their company than those who do not hire a valuation service. Valuations services can provide insights into your company, generate projections, and highlight value drivers and methods to increase the value of your business.
