How To Increase Business Value
It is essential to do everything you can to prepare for selling your business. This article will focus on The Top 10 Ways To Increase Your Business’ Value. Here are 10 things that most business owners fail to do. These are crucial for a profitable business and increasing its value.
1) How To Increase Business Value: Plan your exit strategy.
Owners who don’t plan for their business’ sale, plan to fail. This is the number one reason why businesses fail to sell. You must plan for the sale of your business before you can increase its value.
Many business brokers recommend that you start planning at least three to five years before your exit date. Exit planning can have positive effects on growth and profitability long before the desired exit time frame.
The business owner also benefits emotionally from exit planning. It teaches you not to view your business only as a job but as an investment that can increase in value.
2) How To Increase Business Value: Calculate the real value of your business.
To know how to increase business value, you need a starting point. Get a business valuation and look for areas that allow for growth or cost-cutting. For more on business valuations, check out this article, this one and this one for additional guidance.
Our business brokers can help you determine your business’s value through our complimentary business valuation. Know your value to help you make decisions regarding operating your business and timing your business sale.
3). How To Increase Business Value: Develop a plan for overcoming obstacles.
Look at your business critically. It’s important to be honest with yourself regarding the negative aspects of it and prepare for those issues to be obstacles to a successful sale. Face facts to help you achieve your goal of selling your business sale.
You may need to make concessions are smart-price the business to account for any issues to overcome a buyer’s concerns. You want to address a buyer’s risk aversion up-front and show a willingness to honestly and supportively help the buyer work through what could otherwise be a deal-killer.
4) How To Increase Business Value: Replace tax minimization
Excess accounting strategies that increase the business seller’s profitability are counter-productive to increasing business value. If you have been taking excess deductions, than reconsider your approach for 3 years prior to your business sale. You want to show a high cashflow number to increase your multiples for valuation purposes. When you take excess deductions, then you are reducing business value.
Taking excess deductions is a very, very common practice. It’s obviously good for cashflow to reduce your tax exposure. Yet this practice reduces business value. Fortunately, it’s easy to remedy by limiting your excess deductions in the 3 years prior to your business sale.
5) How To Increase Business Value: Increase your gross profit margin
Inadequate Seller Discretionary Earnings in Small Businesses (SDE) are usually due to either (1) Inconsistent or Low Gross Margins, and/or (2) Inadequate Sales and Marketing Efforts. It may be a combination of both.
Increasing gross sales usually involves either selling more units or increasing sales price. Doing both is even better.
A determined effort to increase the percentage of each sale can make profitability increase. Small businesses are often afraid to increase margins in order not to lose customers. This is the easiest and most casual way to sell a product, but it does not maximize profits. It will reflect poorly on your bottom line if you only make easy sales and don’t push your margins to their maximum potential.
Customer turnover is a positive thing. Sometimes, you may need to trade a less profitable customer for a more profitable one. You must look for the next customer if you lose a marginal customer due to price increases.
6) How To Increase Business Value: Increase sales
Selling more is critical to increasing business value. Where possible, focus on maximizing sales by increasing sales price, hiring more salespersons, getting a sales consultant to help you optimize your sales volume.
7) How To Increase Business Value: Increase marketing
Our experience in business brokerage has shown that the majority of small businesses don’t have any marketing/sales plans or efforts. Yet, they will often know exactly what to do and have many suggestions for what the buyer can do.
Don’t delay any further. Develop a marketing plan and implement, implement, implement to increase sales. Focus on your best marketing funnels, be they digital, print, advertising, etc. and add-on marketing channels as needed for further growth.
8) How To Increase Business Value: Organize and document your business operations.
Documented business systems and key employees provide buyers with a lot of confidence. This type of documentation is very rare in small businesses, so it makes a positive impression on potential buyers. This helps you to distinguish your business from other businesses that may be available for purchase.
Once your operation is documented and systematized, there are many other benefits. These include: 1) training new employees; (2) making it easier for you to delegate oversight of procedures and helping to develop key employees; (3) allowing you to spend more time on your business than your business which will lead to increased profitability; and 4) simplifying the buyer’s due diligence.
You may also find opportunities to improve efficiency and increase your results by reviewing your processes. Redundancies and unnecessary steps may be eliminated or improved. Employees should be encouraged to offer suggestions for improvement. This could lead to significant improvements.
The process of developing new customer leads… results in sales opportunities and processes to try to close the sale. When successful, the product or service will need to be produced. This can involve multiple processes (such buying, scheduling, assembly). …which results in the delivery of the product or service. All of this requires the account for all transactions (payroll and expenses, invoicing, collection, etc.). Many businesses also have after-sales interaction with customers (customer support, complaints handling and attempts to sell to existing customers). ).