You’ve worked hard to build your business and now it’s time to let go. You’ve heard anecdotally that your business should sell between 1.5 to 2.0 times revenues. You start getting excited about enjoying retirement. The first offers come in much lower than expected…………………at only 1.00 times revenues!! How could that be? This blog shows you Three Ways to Increase Business Value.
There are many reasons why a business owner is disappointed at the reality their business is worth less than expected. Here are the top reasons for that disappointment and how to turn that around.
- Concentration in Customer Revenue Yes, the large customer you landed last year deserves congratulations, but from a buyer perspective, smaller volume customers that equal one giant customer are worth more. Why? There is higher risk with a business where a few customers represent a significant level of total revenues. The loss of a single large customer could be devasting for your business. From a buyer perspective, it represents higher risk and converts to a lower entity value.
- Future Projected Growth A company that is growing and has a plan for growth is valued higher than a company with low or stagnant growth. A robust history of growth gives the buyer comfort to believe your future growth story. Be sure to tell the buyer about past and future growth strategies. You need to back that up with the resources to execute on any future growth plan.
- Owner Dependence If the owner is the business from the perspective of the customer, what’s going to happen when the owner leaves? Does customer loyalty disappear? Your business should not be dependent on any single individual. In fact, all employees should be cross-trained so there is overlap and substitute roles are available. To maximize value at exit, your branding should be at the enterprise level, not at the ownership level.
Buyers perceive value as a function of cash flows and risk. As a business owner, your job is to maximize cash flows and minimize risk.
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