When selling your business, there are many strategies you can use to increase the valuation of your business. Although many different strategies can work to a certain extent, several of them are a lot more impactful on your bottom line and can make your life much easier. In this post, we will explore the best ways to add value to your business while improving the day-to-day operations for you. Some of the best ways to add value to your business include:
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The revenue of your business is a direct representation of how well sales and marketing are performing. Buyers want to see a business that is growing which means revenue is growing from one year to the next and having more than one line of revenue is a great way to increase revenue. This is why diversifying revenue is a key way to enhance your company’s value; additional sales channels can increase cash flow.
New revenue streams can also decrease risk because it means that the business is not reliant on a single source of revenue reducing some of the risks that may be in the mind of a potential buyer. You can diversify revenue by adding additional sales channels, offering more products and services, and getting new partnerships for your business. Additionally, you should also showcase revenue growth over a two or three-year period; this is a great indicator for the direction your business is heading in. If your business took a hit as a result of COVID, going back another year with the financials can help give your buyers a more accurate assessment of your business.
Obviously, the profitability of your business plays a large part in how your business is valued. When buyers value businesses, they use profit as a key metric and then apply a multiple to that amount which can establish what the business should sell for as well as the trend line. This helps them identify if the business is increasing profits as it grows or not. The bigger your profit margins are for your products and services, the more leverage you have to negotiate a higher price.
Some simple and actionable ways to improve profits include:
- Reducing costs: Your business likely has services and other miscellaneous tools you pay for on a monthly basis. Reducing or even eliminating some of those that may not be necessary is an easy first step to increase profitability. Take a hard look and ask if these are vital to running and growing the business.
- Raising prices: Raising prices even marginally can have a great impact on improving your profitability but, you need to balance that against customers’ willingness to accept any increases in price. It is wise to start with a modest increase and be prepared to answer questions from customers as to why the increase is taking place.
- Upselling current customers: Providing additional services to your existing client base is a great way to add additional margins. Your longest-standing customers are the best prospects to sell more of your services and products to because they have likely a trusted relationship with you and the business and there is no cost to acquire these customers.
Getting An Updated Business Valuation
The vast majority of businesses haven’t done a business valuation or haven’t had one in many years. Without a business valuation, you probably don’t have a good estimate of what your business is worth. It is hard to set goals for increasing the valuation without a solid starting point.
In addition to being a reference for buyers, a business valuation may provide a baseline for where things are today and allow you to develop a plan to increase the valuation over time.
To help increase profitability, you may try to make day-to-day operations more efficient. You can start streamlining your operations by exploring different software programs and systems that can eliminate the manual repetitive work from your business and reduce operating costs. A potential buyer wants to see that your business can run smoothly without your direct involvement. The more streamlined and automated your business is, the more attractive it is to potential buyers.
In addition to technology, bringing in a part-time employee or someone with expertise in a given area can give you more flexibility while improving your productivity. Examples of this can include contractors like marketing experts, accountants, and more. Taking time to streamline the process for your business now will make your life easier and manageable until it’s time to sell your business.
Consulting With A Small Business Coach
A great resource on learning how to add value to your business is a small business coach that has extensive experience with the different tactics business owners have used to increase the value of their business prior to selling. A lot of advice on adding value to your business is generic and may not apply to your specific business. With the guidance of a business coach, you can apply practical tactics that will eventually add value to your business prior to selling.
Depending on the size of your business, a small business coach can help you add tens of thousands of dollars if not hundreds of thousands of dollars to your final sale.