8 fundamentals for increasing the value of your client’s business
As a business owner it is easy to get stuck in the weeds. The day-to-day commitments that a business deals with can prevent owners from thinking about the big picture. This reality is what hinders many companies from developing long-term plans for how to grow the value of their business. The absence of a strategic plan for increasing the value of a business can often stall out the momentum of a company’s growth. This is where business valuation professionals can provide value for SMBs. By connecting the dots between the day-to-day logistics of a business to the owner’s goals for the future, a valuation professional can offer irreplaceable value.
Valuation professionals can take this value a step further to generate valuation engagements with prospective clients by presenting their business as an investment. Owners of every business will eventually either sell their share of the business to a family member or fellow partner; or they will sell the business to a third party. Every owner hopes to part ways with their company knowing that they have grown the value of the assets that were entrusted to them. No one hopes to break even.
After gaining your client’s buy-in for performing a valuation be ready to equip them with tangible ways of increasing the value of their business over the next year, the next five years and beyond. Here are eight fundamental areas for helping your clients focus on increasing the value of their business.
The following is an excerpt from the Practice Aid “8 Fundamentals for Increasing the Value of Your Client’s Business“, created in collaboration with Rea & Associates.
Financial Performance: Consider the business’s financial performance as one of the key pieces of information that will factor into the eventual sale of the business. The more consistent financial performance has been in the past, the better it looks to a prospective buyer.
Growth Potential: Financial performance gives the buyer a glimpse into the past. Growth potential, on the other hand, will paint a picture of the company’s future. Since buyers are investing in the future of the company, its potential for growth is essential.
Risk mitigation: The business should not be dependent on any one customer, employee or supplier – it’s too risky and will be a big red flag to a buyer.
Equipment: Has it been more than a few years since the company’s equipment was updated? Then it may be time for an upgrade. If a buyer has to allocate more of their money to equipment costs, they are less likely to pay a higher asking price for the company as a whole.
Recurring revenue: If a business can provide the buyer with a dependable and consistent revenue stream, then it will look much more attractive to the buyer – particularly if that revenue stream is secured by a contract.
Market Control: Future cash flow is important, and the higher the barriers to entry, the harder it is for a competitor to take away market share. What differentiates this specific company?
Customer Satisfaction: High customer turnover likely means there is a problem with the business, and, if the company does nothing, it may impact the way the business is perceived in the marketplace. A buyer might hesitate to take over a company with a bad reputation.
Owner Independence: If the business is dependent on one person’s leadership, it’s going to be difficult to make the sale. In fact, the buyer may try to retain the owner’s presence in the company for a period to ensure a smooth transition – which could defeat the purpose of selling in the first place. Instead, start building a solid management team to ensure that your business will continue prospering long after you are gone.
Sageworks Valuation Solution
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