How to Increase the Value of Your Business Before You Sell

How to Increase the Value of Your Business

Is selling your business a future consideration? If you are like many business owners, you know you will one day sell your business. Too often owners take time for granted. They always believe they have more time to consider how best to prepare their businesses for sale. The flaw in their thinking is that they really do not know whether the best time to sell is this year, next year, or 50 years from now. I have heard so many stories from people who were offered a lot of money to sell their businesses and turned down the offer, only to find five years later that they could only attract fractions of that offer. It is important to understand how to increase the value of your business before you sell, and it’s equally as important to determine the right time to sell.

3 Primary Reasons For Buying A Business

The primary reason for buying a business is return on investment. They will pay what they consider is a fair price based on 3 primary factors:

  1. Does the purchase remove a business barrier?
  2. Does the purchase eliminate competition?
  3. Is the purchase a strategic fit in terms of :
  • Geography
  • Customers
  • Employees
  • Tangible and/or intangible assets

7 Ways to Increase Valuation

You should build your business as if it might sell tomorrow. By continuing to improve and monitor the following valuation levers you can increase the value of your business and possibly identify when it is time to sell:

1. Profit Growth Rate

Profit Growth Rate – how predictable and consistent is your profit and revenue growth rate? The higher, more predictable, and consistent the pattern, the better. These are two crucial measurements that determine the health of your business. Great businesses are able to reliably predict their profit growth rate, and are rewarded handsomely when they are ready to sell. Understanding, monitoring, and improving the predictability and consistency in your profit growth rate will help increase business value for the right sale.

2. Industry or Market Segment

Industry or Market Segment Attractiveness – What does the future look like? What do experts say about it? How is your company uniquely positioned to get its fair share? Positioning your business in a growth industry and targeting the right market segment will be an important factor in the continued success of your company. Being in a growth market will improve the valuation for your business as buyers will pay more for companies in growth markets.

3. Low (Relative) Market Share

You want to be seen as a business leader, but you don’t want to be seen as a risk because you have saturated your portion of the market. As a business effectively continues to grow and increase its market share, the more profit potential they have.

4. Customer Concentration

Customer Concentration – a company must not be overly dependent upon a single customer or customer group. Customer (or revenue) concentration can be one of the biggest risks to your company’s profit. No customer should make up 10% or more of your revenue. With the right business strategy and tactics, you’ll be able to bring that number down to 2%. Having a low concentration risk will increase your business valuation, making buyers more likely to pay more.

5. Recurring Revenue

Recurring Revenue – this is one of the most favorable ways to increase business valuation because it supports consistency and predictability. It also allows for focus on decreasing delivery costs to customers over time – thus increasing profitability through time. The higher the level of recurring revenue, the more you will increase the value of your business before you are even ready to sell.

6. Company Size and Location

In terms of revenue, employees and geographic locations play a role in salability. Buyers see smaller companies as more of a risk than larger companies. The same goes for geographic location. If the business is in an area with a dwindling economy or even a lower population than one with a larger / steadily increasing economy, they automatically see this as a risk to potential profit that they more than likely won’t be willing to take.

7. Management and Executive Team

Management – seasoned and experienced managers in the industry with a track record of success are very important. It is hard to find great management talent. Skilled employees and executives often times will know exactly what it takes for the business to see growth in profit, making them key aspects to a new business owner. Buyers want to see a team of employees who are willing to work hard and are dedicated the overall success of the business. Hold on to your top-performing players and offer them incentives to want to be with the company long-term.

Need help with increasing the value of your business before your sell?

An executive business coach can help increase profit margins, improve predictability, and increase valuation to properly prepare your business for sale. Call Howard Shore, one of the top business coaches in the United States, for a FREE consultation at 305.722.7213 to see how an executive business coach can help you run a more effective business and become a more effective leader.

Does a Remarkable Company Culture Equate to Superior Performance? You Bet It Does!

I’ve had the opportunity to work with many amazing clients over my decades of coaching businesses and their executives, and I’ve been able to learn and confirm many eye-opening things about what made them great. One thing that proves true time and time again is this: The organizations that exemplify sustained superior performance all have a remarkable culture—without fail! While it is true that you need products or services to make money, the prevailing attitudes and behaviors that characterize your people are what fuel success. In other words, the core values practiced daily have helped top companies be more successful than their competition.

A Case in Point – “XYZ Company”

The best way to get your attention is through the eyes of a real company. This company, which for our purposes shall simply be referred to as XYZ Company, significantly underperformed against its competition. Its curse was that its performance level provided an adequate income for its main shareholder and leaders. What it did not want to address was what everyone who visited the company could see.

XYZ Company had approximately $1 Billion in sales. I met with the senior management team to understand the circumstances faced by the company. They were looking for someone to conduct training with their sales force. While it would be nice for me to have an engagement to develop 150 salespeople, I always first assess the company’s real need. What this company needed was more sales, not training and development.

The facts were alarming. I found that the company did not have clear goals, did not fire non-performers, did not have good hiring policies, did not tie compensation to performance, etc. In the end, I asked the magic question, “What are your company’s core values?”

The silence that followed was a bit deafening. The leadership had never defined or implemented core values to make this company great. What resulted were unwritten core values that were unflattering:

Mediocrity – Salespeople were not working hard or trying to be the best. When selling to customers, they would give in on price because they believed they were second-rate compared to their competition. Very few salespeople would proactively go to training, and when the company offered it, they would not show up.

No Accountability – If people did not hit their sales targets, it did not matter, particularly if they had been with the company for several years. They were just “forgiven” and still paid handsomely.

Mistrust – The organization would not follow-through on initiatives. They would talk big and act small. Consequently, when they said they wanted to create change, nobody took them seriously. Additionally, while the leadership indicated they had a “consumer-oriented” strategy, 80% of its products were “commodity-based.” The company generally operated as if their strategy was “low cost.”
Disrespect – Senior Management would begin initiatives only to have the CEO come and usurp them.

XYZ Company was growing slower and had lower margins than their competition even though their product was just as good, and in some cases, better. Many of their employees, including senior management and salespeople, came from the competition. While they thought sales training would solve their problem, they were not facing the core issue, which was values. My recommendation was to address the real issue first so they could get a real return on their training investment.

Find Your Core Values

As you can see with XYZ Company, if you do not plan your core values, they will happen anyway, and the results can be devastating. When it comes to a company’s culture, the longer you wait to define and instill the right core values in your organization, the harder it will be to achieve your ideal culture and maximize performance.

This does not need to be a prolonged exercise, and I do not recommend copying someone else’s values. I have worked with many companies. Typically, we bring together the senior management team and identify and define core values within 1 to 4 hours, depending on how large the group is. It can be fun and is critical to understanding what is important to driving your company’s vision.

Here is an example of one of my small-company clients’ core values, whose growth is more than 20% per year:

Trust is Everything – Decide, speak, and act to enhance our reputation.
Speak Up – Challenge the status quo.
Have Grit – Give 100%! Be process-focused, driving consistently high outcomes, and no excuses.
Make It Happen – Ask “How can I”…inspire action and results.
Be Humble – Be curious and inquisitive, and never stop learning.

So, if you want to reach a place of sustained superior performance, take a look at your company culture and the core values established by the leadership. If your core values aren’t clear, lock your senior managers in a room and have them clearly identify and define what those values are. That’s where it starts.

Once you have defined your core values, the real work begins. While it is essential to know what those values are, it is equally vital to institutionalize them. I’ll share more on this in my next blog. Be sure to join me then.

In the meantime, let us know how we can help launch your business to the next level, even in a pandemic. Receive a free 30-minute consultation from one of Activate Group’s expert coaches. No strings attached. We just want to help you during the COVID crisis.