Six Tips for Increasing the Value of Your Business
Owning a business represents a life’s work for most people, an emblem of their vision, creativity, determination, and perseverance. Needless to say, your business value is one of the most important factors to success. As a result, when the time to sell eventually comes around, business owners will want to receive top dollar for their company. While businesses are ultimately valued for their ability to generate growing profits in the years to come, the following 6 tips can help in this regard and increase the value of your business in the eyes of potential buyers.
1. Get Your Documentation in Order
One of the best ways to increase the value of your business is to, well, know the value of your business. Investors will assess your business on a number of factors, such as debt-to-income, free cash flow, and projected sales growth. In the end, if they see that your business is in a strong position to provide them a healthy return on their invested dollar, your business’ valuation will skyrocket.
The problem is that many small business owners have no idea on how to value a business. Business valuation requires a unique mix of tangible and intangible considerations. Among the tangible factors that can influence a business’ valuation include EBITDA, profits vs. cash flow, trends in profit, and percent of market share. General accounting financials, such as balance sheets, income statements, and tax returns, are also important to compare on a year-over-year basis. On the intangible side, pending legal rulings, brand image, the business’ sustainability practices, and goodwill in the community are all important factors that can drive value.
Having organized documentation for the business may be difficult for the business owner amid the grind of day-to-day operations. Therefore, it is a good idea to work closely with professional accountants, attorneys, and business brokers when forming a business valuation. While there may be up-front costs for these professional services, having an accurate assessment of the business’ worth is an important first step in laying the foundation for increasing value.
2. Demonstrate Scalability to Help Business Value
A scalable business does not have to spend more money to make an additional sale, allowing profit margins to increase alongside revenue. Scalable businesses are attractive to potential buyers because hypergrowth scenarios are possible with the correct marketing and execution, as owners can focus on running the business without the need for significant capital expenditures.
One step that businesses are taking to ensure greater scalability is to incorporate subscriptions into their business model. In general, it does not cost businesses much more money to sell an additional subscription. This has caused subscription models to proliferate across a wide range of industries, with car subscription services, alone, set to increase by 71% by 2022.
3. Take Steps to Ensure Employee Loyalty
As many businesses scramble to find ways to leverage technology and increase automation in their operations, it may seem intuitive to believe that employees are less important than ever. However, there are a couple of reasons to reconsider this notion.
First, potential buyers are likely to be attracted to those businesses that come with high-performing employees, as it will save them time and resources in recruiting, hiring, and training their workforce. In fact, statistics show that businesses spend more than $4,100 per new hire, so businesses coming with a ready-made staff will be highly appealing.
In addition, customers are more likely to choose businesses with a strong reputation of treating employees well, with 29% of a surveyed sample saying that how a business treats their employees is a significant determining factor for whether they will become a loyal customer. Therefore, if you regularly explore ways to make employees feel valued and solidify their loyalty, it has the potential to greatly increase the company’s value.
4. Improve Your Business Space
As many businesses continue to explore ways to increase remote work and contactless order fulfillment, those companies with physical locations must find creative ways to optimize their business spaces. One idea involves using large windows and open spaces to increase natural light flow, which provides a more inviting ambience to attract customers and lowers utility requirements. In addition, it is important to design physical spaces in an adaptable manner, allowing the area to be shared with other patrons or rented out for special occasions.
5. Increase the Convenience of Your Offerings
Fast food and drive-thru windows are an early example of the premium customers are willing to pay for convenience. Since the COVID-19 pandemic, delivery and curb-side pickup have also taken off. Finally, the continuing movement toward ecommerce has many customers choosing the convenience of online orders as opposed to visiting physical storefronts.
Therefore, any features that can add convenience to the customer experience are a great means of increasing your business’ value. In addition to the aforementioned features (if applicable), some other ideas for adding convenience include:
- Business-specific apps that allow for quicker shopping and faster payment
- Favorable shipping costs and terms
- 24/7 accessibility
- Subscriptions and recurring purchases so customers don’t have to remember to make a purchase. Just remember to make out opt-out avenues easy to locate
6. Add Automation as You Increase Your Business Value
Although it is critical to have a loyal and high-performing staff to appeal to potential buyers, there is no denying that automation will have a positive impact on valuation. Business investors will savor the idea of not having to pay salary, benefits, and time off for every single business function.
Self-checkout kiosks are an obvious choice for businesses that feature a physical storefront. However, even for businesses that are strictly online, there are still ways to add automation. Ecommerce CRM processes, feedback templates, chat bots, contactless payroll, and order fulfilment software are all ways to increase business value while reducing the work required on the part of the business owner.
Increase Your Business Value
As a business owner, it is essential to take steps to increase the value of the business in order to receive top dollar at the time of sale. By getting documentation in order, demonstrating scalability, ensuring employee loyalty, improving the business space, increasing the convenience of offerings, and adding automation, business owners can increase the value of their business and appeal to a wider range of prospective buyers.