Top Five Factors that can Increase the Value of Your Business
Many of our valued Monkee-Boy clients are in the business of selling their businesses. They go into business with a clear path to increase the value of their company, sell it, and buy one of those really nice houses on the lake. At Monkee-Boy, we often think of retiring 40 or 50 years from now — having too much fun right now to even consider it (but make me an offer I can’t refuse).
If you are considering selling your business it’s useful to look at your company from a buyer’s perspective. Improving your performance in five specific areas critical to a buyer increases the value of your company, leading to a greater selling price for your business. According to the Austin Dale Group, here are the first five “strategic value drivers” that can raise the value of your business. In our next electronic newsletter we will share five more factors to consider.
1. Customer Diversity: If too much business is concentrated in too few of your customers, the value of your business is reduced. If you have this problem (more than 10% of revenues with individual customers), start focusing on a program to diversify.
2. Management Depth: A buyer will look at the quality of the management staff and employees as a major factor in arriving at an acquisition price. Ideally you should assign your successor a year in advance of your scheduled departure date. If you have a strong management team in place, you should try to implement employment contracts, non-compete agreements, and some type of equity participation to keep these stars involved through the transition.
3. Contractually Recurring Revenue: All revenue dollars are not created equal. Revenue dollars from annual maintenance contracts, annual licensing fees, recurring retainer fees, and technology licenses are more powerful value drivers than projected sales revenue, time and materials revenue, or other non-recurring revenue streams.
4. Proprietary Products and Technology: This is an area where the valuation rules do not always apply. If strategic buyers believe that a new technology can be acquired and integrated with their superior distribution channel, they may value your company based on its projected performance after an acquisition. The marketplace rewards effective innovation over commodity-type products and services. Continue to look for ways to innovate in all facets of your business.
5. Penetration of Barriers to Entry: Owning hard-to-get permits, zoning, licenses, or regulatory approvals can be worth a lot to the right buyer. These may include liquor licenses, government contracts, municipal zoning permits, etc.
Source: Austin Dale Group