How to increase the value of your business
Selling a business is never as straight forward as you might like to think. Preparation can significantly increase the chances of sale and increase the value of your business.
To get the best price for the seller takes months of preparation. For best value for the buyer takes months of due diligence and investigation. Often there is a gap between what the seller what to sell for and the price the buyer thinks is fair. Here’s 5 ways you can increase the value of your business to a buyer:
- REVENUE GROWTH
- REVENUE CONSISTENCY (recurring)
- DEBT REDUCTION
- INTELLECTUAL PROPERTY
- REDUCED OWNER RELIANCE
1. Revenue Growth
As long as you are making good gross margins, then increasing your revenue will make you more attractive to a buyer. It increases the profitability, which means you are generating more cash. Cash generation means economic return on their investment which is what all buyers are looking for.
If revenue growth comes from a wider range of customers, new markets or new geographies then even better as this show a de-risking of the business.
2. Revenue Resilience and Consistency
Strong revenue consistency is a key factor in the value of the business. Having good customer retention and recurring income gives any buyer or investor the confidence that the business will continue to be successful. Having a recurring income business model significantly impacts business valuation as evidenced in the technology sector.
3. Debt Reduction
When a business has debt there is also a cost to servicing the debt in interest payments. Many buyers will expect to buy a business clear of debt. If the debt is too high for the business it can strangle growth because of the cash demands of repaying debt. Showing an ability to repay debt quickly without impacting the businesses ability to grow is good for the value of the business.
4. Intellectual Property
Having some kind of “secret sauce” makes your business more attractive to buyers, especially where the “secret” can be protected legally. Even where there is no legal protection, having a product or service that can be consistently delivered to a high quality no matter how big the business grow is of value. This can be in the way you deliver or in the construction of the product or service itself. Here at Succession Plus we have our 21 Steps framework – it marks us out as having a made to measure service that is bespoke to every customer and makes sure we don’t miss anything that is needed in the planning process.
5. Owner Reliance
The more you work IN your business the less it is worth. If you can show a buyer that the business is not wholly reliant on you to run it and lead it then this adds significant value. Any buyer may not have your expertise, and may struggle to find that resource – in which case they are going to want you to stick around while you transfer your skills to someone else. This is a risk and reduces the amount of money they will be willing to invest in the purchase – or may scare them off completely.
