My clients always ask me how to increase their small business’ value and honestly this is where I spend a majority of my time helping you when you’re preparing to exit. Driving more value helps to increase the likelihood your business will sell so that your business is one of the 13% that successfully transacts. (Bonus: increasing your business’ value also brings you more money from your exit.)
So where do you start?
Put yourself in a business buyer’s shoes: think about what would be important to them and what would cause them to pay more money for your business.
People. Take a look at the people inside your company.
Are their roles diversified? It’s important to not be overly dependent on any one person because if you have one key employee, that person could have too much leverage. The business buyer wants to know there’s certainty they can rely on the team and that there’s more than one person at the company that can do more than one thing.
Products. Recurring revenue or subscription products are one of the most popular ways to add value because they guarantee repeat customers.
Come up with a way to get more sales from already established customers on a recurring revenue stream and you’ll get top dollar for your business exit.
Customers. Make sure your customers are diversified.
A lot of businesses have one big fish customer so if that customer leaves, you’re in trouble. Make sure your customers are diversified and that you don’t have any customer concentration issues.
Technology. Do you have it? Does it work? Does it make the business simpler to operate?
It’s amazing how many businesses don’t have a website. A business’ website these days is like curb appeal - if a business doesn’t have a nice website, it makes the wrong first impression.
Even technological things like having inventory software and a POS system add a lot of value to your company.
Processes in place. What processes exist in your business?
How do you find and hire and retain new employees? Do you have SOPs? Are they documented? Do employees have job descriptions? How do you generate leads? How do you market? Most small businesses don’t have these documented as well as they could be. Taking the time to formally document these processes creates a seamless transition for the new buyer.
Location of business. Some small businesses are tied to the real estate, some aren’t.
For example, a candy company has an online presence and no one cares where their warehouse is located. In this instance, the business could save on expenses and move the warehouse location. But if you have a candy business on Main Street with no website and all your traffic is from actual foot traffic, you could be locked into paying a steep rent.
There are certain dynamics you want to play with depending on the industry and opportunities available so look at all possible scenarios in order to save money and create the most traffic.
Scale of business. Look at where the business is at and specific ways to increase sales revenues.
Businesses that have higher sales revenues transact at a higher multiple. The more sales your business generates, the higher the listing price of your business.
Marketing. Where do you get your customers?
How do you get your customers? Can you optimize the cost per acquiring customers? Is cost per customer acquisition documented? New business owners will want to know how to get new customers and how much it will cost to do so. Knowing these numbers make your business much more valuable.
There’s a lot of overlap between these ways to drive more value and, as you can see, many of these variables depend on one another.
Looking to drive more value in order to maximize your exit sale? Schedule a call today and find out if you’re a good fit for exit plan coaching.
As an added bonus, whether you decide to work with me or not, I’ll identify at least one specific way you can immediately drive more value to your business. What do you have to lose?