What is your business worth? To you, the business may be priceless; if you built the business from the ground up, you might have a personal attachment to the organization that can’t be quantified. But most investors and strategic acquirers are going to be more interested in determining an exact, numerical value for your business.
How can you increase this value to its maximum potential?
Why Increase the Value of Your Business?
Increasing your business value is usually a strategy related to mergers and acquisitions. If you’re interested in selling your company, you’ll want to optimize conditions so you can sell that company for as much money as possible.
Within this realm, there are many legitimate reasons for wanting to sell your business. Maybe this was always part of your plan, and your end goal was selling the company for a massive profit. Maybe you’re looking for a career change, but you want to keep the company up and running. Or maybe you’ve been running the company for decades and you’re preparing for retirement.
Whatever the case, increasing the value of your business should allow you to fetch a higher sale price and walk away with greater wealth.
How to Increase the Value of Your Business
These are some of the best strategies for increasing the value of your business.
- Grow sales. Most people interested in buying your business are going to highly prioritize the business’s money-making potential. The more sales you have, the better – especially if you’re on a trajectory to increase sales over time. Increasing the number of sales within your business is a surefire way to increase its value and sale price. Of course, increasing sales isn’t always easy or straightforward, and it certainly doesn’t happen overnight. This is a strategy you’ll probably have to execute over the course of months, or even years, in anticipation of eventually selling your business.
- Increase recurring revenue. Alternatively, or in addition to growing sales, you can focus on increasing recurring revenue. If you have a highly loyal base of customers already, you can work on generating more revenue from those customers on a predictable basis. Increasing prices, offering subscription services, and upselling when possible can all help you do this. Strategic acquirers love predictability, so the more consistent your revenue is, the better.
- Diversify your income streams. Another option is to diversify your income streams, which serves two goals at once. First, increasing the number of income streams for your business will inevitably increase the amount of money it generates, increasing its value in an obvious way. Second, generating income in many different ways is a form of risk mitigation; the business is stabler and less susceptible to volatility.
- Solidify internal processes. In the course of due diligence, potential buyers will be looking for consistency and continuity; accordingly, you should spend time solidifying your internal processes. For example, you can write standard operating procedures (SOPs) for your most valuable roles and workflows. You can cross-train your employees to establish more intellectual redundancy. You can also integrate more automation and streamlined workflows to improve productivity and make the business simpler to run.
- Cut costs. Profitable businesses consistently sell for more, so in addition to increasing revenue, you should focus on cutting costs. The leaner and more efficient your business is, the more attractive it’s going to look. There are several areas you can focus on here, such as reducing overhead, minimizing labor expenses, and producing material costs.
- Clean up your books. Before finalizing the purchase, prospective buyers are going to do a deep dive into your financial history. They need to make sure that all your claims are true and that there’s a reliable paper trail for every conceivable transaction. Accordingly, you should spend some time cleaning up your books and getting financially organized.
- Keep investing. If you plan on holding the business for months to come (or longer), keep investing in it. New assets and expanded influence will only increase its value.
- Improve agility. Adaptable businesses are highly valued, so institute changes that allow your business to nimbly adjust to new circumstances and external pressures.
- Find a mentor. Finally, consider finding an entrepreneurial mentor. Your mentor can help guide you on all these strategies and more, helping you identify the weak points of your business and compensate for them. They may also provide direction on further improvements you can make – or even introduce you to prospective buyers.
These strategies reliably increase the value of your business from the perspective of an acquirer, but they don’t always work quickly. In many cases, you’ll spend months, or even years optimizing your business to be better. Remain patient and focused on your long-term goals if you want to maximize your chances of success.