If you were asked what could boost your company’s value, you might say: “make more sales.” While it’s true that higher revenues usually indicate growth and health in a business, you might be surprised to find out that just increasing sales doesn’t necessarily raise business value. During the recent economic downturn, many companies faced sharp drops in sales, which negatively affected their overall worth. However, those businesses that managed to get through the crisis with minimal damage often had other strengths that helped them endure tough times and recover faster. In Cashing Out of Your Business, we included a chapter called Building a Better Box, where we discuss what adds value to a privately held business. Here, we will explore five key ways you can increase
- Develop a strong management team. If your business is too dependent on you, it can have diminished value regardless of the economic times, due to greater perceived risk. To improve value, have an empowered effective management team that can operate the business without you.
- Have well written processes and procedures. This increases business value by creating one that is more likely transferable and sustainable. If your systems, customer lists, procedures and intellectual property are not well documented and protected this can affect value.
- Diversify your customer base. Increase your business value by limiting your dependence on a limited number of customers. If any one customer is responsible for more than twenty percent of your revenues that can be a detriment to value. The broader your customer base the less the perceived risk of economic loss due to the departure of one large customer.
- Have well documented, clean financial records. This is one of the most important value enhancers. Business owners tend to focus on minimizing taxes rather than increasing the bottom line. This can decrease the business value significantly as value is a function of profits more than gross revenues.
- Have an effective sales and marketing plan. Value is enhanced by demonstrating a continuous effective pursuit of new customers and markets through a written plan with measurable results.
These are just some of the key areas that a prospective buyer may evaluate when considering your company. As you can see, these “value drivers” or value enhancers improve the overall quality of your business while reducing risk no matter which transfer option is selected. In simplest terms, value is enhanced by the reduction of risk. The creation of more business value is a result of many key elements which we explain in more detail in our publication, The 2013 Guide to Maximizing Business Value When Selling Your Business. This guide provides more tips for building provable, sustainable, repeatable, transferable profits which can continue in your absence, download it today by clicking below.
