3 Tricks To Easily Increase Your Business Value (Number 2 Is Sensational)
You arrive at your favourite restaurant with your favourite person.
The host welcomes you, escorts you to your favourite table and makes you your favourite drink.
You enjoy the ‘small talk’ as you’re drinking your cocktail.
And then the Maitre d’ comes over again . . .
“Ze chef, ‘e ‘as prepared, ‘ow you say, ‘is specialty of ze ‘ouse for you. Eet is not on ze menu but I know you weel enjoy eet -eet is sensational. Weel you accept my recommendations . .. yes?
Ten minutes later, the Maitre d’ appears.
He’s carrying ‘ze specialty of ze ‘ouse’ on a large silver platter covered with a large silver lid.
He places the platter on your table, lifts the lid and says “May I weesh you . . . bon appetit’.”
At this moment, you look down at the platter and see. ..
TWO BIG, RAW, PEELED ONIONS.
Nothing else. Only red onions.
So, somewhat annoyed (since raw onions aren’t exactly your favourite food) you get up and leave.
Disappointed. Annoyed. Vowing never to return again.
You get all excited when you pluck up the courage to get someone to value it.
To end up with a rotten vegetable that you don’t like.
Improve Your Business Value By Removing The Owner From Operations
To increase the value of your business, you have to make it more exciting.
Not by having slides in the office instead of stairs.
Or by having a wild bull run around the car park.
That’s not what I mean by exciting. (Although I’m not sure whether a bull would be exciting or terrifying, to be honest).
It doesn’t matter whether the business is exciting to you. Although it should be if you’re not planning on selling it.
In effect, you don’t want to offer them something unpalatable and boring (like onions).
That’s when they’ll mentally ‘walk away’.
So what would make your business exciting to a business buyer?
Let’s go back to the restaurant to find out.
Our Maitre d’ has learnt the error of his ways.
His next customer for “ze speciality of ze ouse” gets onions too… but this time they’re a little different.
There’s a bed of attractive-looking rice laid out. On the rice is a skewer. And on the skewer is a little piece of onion.
Followed by some delicious peppers.
On the skewers, after the peppers is an exquisitely cooked cube of meat. And that’s followed by another piece of onion.
Then another piece of pepper and another succulent piece of meat… and so on.
Your taste buds can hardly wait.
Well, you’re going to learn how to add the bed of rice, pepper and succulent meat to your onions right now.
Increase Your Business Value
The 3 Tricks
Most small business owners end up selling their businesses for a very low price.
But to understand why that is, first you have to understand how a business is valued.
You see, a small business is valued using 2 main metrics (that can be very different to valuing a blue chip corporation).
The first thing to take into consideration is the balance sheet.
More specifically, the equity on the balance sheet.
So what is “equity?”
Well, it’s calculated the same way that it is when you work out what equity you have in your house.
You take the assets (things you own) and take away the liability (debts you have).
Just like when working out the equity in your house, you look at the asset (the house) and take away the liability (the mortgage debt).
When you’re clear on that number, the second part of the calculation is centred around the profit you make.
To value a business you take the equity, and then a multiple of the profit you make and add those 2 numbers together.
So why do most small business owners sell for a low price?
Because they don’t follow the tricks laid out in the rest of this article (especially the points in the 2nd tip).
Business For Sale
1. Improve The Profit
When it comes to selling a business, the first thing that will interest the potential buyer is profit.
They want to know that their investment will provide a good return.
For this reason, it’s so important to focus on increasing profitability.
That is if you want to increase the value of your business at least.
You can achieve it by reducing costs, increasing sales, and improving efficiencies.
Another key factor in assessing the value of a business is profit growth.
If your business is growing year on year, this indicates a strong and stable business that has the potential for future success.
A buyer will be more willing to invest in a business that has a proven track record of profitability and growth.
It gives them assurance that their investment will be safe and yield a good return.
To attract potential buyers, it’s important to put yourself in their shoes.
What would you want to see if you were considering investing in a business?
You would want to see a well-managed business with a clear plan for growth.
Solid financials are a given, and so is a strong customer base.
Take a look at your business and address any areas of weakness.
Then you can make your business more attractive to potential buyers.
That’s only going to increase its value.
Remember, the key is to make your business as safe and secure an investment as possible.
And a strong profit would come out on top of most buyer’s wish lists.
2. Improve Your Profit MULTIPLE
There are several key area’s that dictate what multiplier you will get in your business.
If you don’t have any repeat customers, there’s just you in the business and your turnover is low, you could be looking to get a 1 times (or 1X) multiplier.
That’s if you can even find anyone to sell it too.
But if you have a larger company, that does millions in sales and has a strong management team. You are likely to get a much higher multiple.
Here’s something that will help your multiplier (if it’s possible in your business):
A subscription-based business model…
…It can really help increase the profit multiplier.
The reason is that it provides a steady and predictable stream of revenue.
That’s sexy and attractive to potential buyers.
Because it guarantees a certain level of cash flow.
Making the business more valuable.
If a buyer is confident, it increases the value.
Especially if you get two buyers looking to offer at the same time.
On top of that, the more revenue a business generates…
…the higher the profit multiplier will be.
This is because larger businesses are often viewed as being more stable. That’s also more attractive to buyers.
You’ll likely view a business generating £10,000,000 a year in sales as more valuable than one making £100,000.
It’s because a larger business provides a greater level of security.
They also have more cash for growth.
Here’s another way to improve the multiplier.
Make sure that the senior management team has long contracts.
This gives potential buyers confidence that key people will stay after the sale.
You don’t want to buy a company and then all the staff runs away.
Long contracts reduce the risk of a decline in the business’s performance.
A strong brand reputation is also attractive to buyers.
That’s because it can help to mitigate risk and improve the chances of future success.
If a business is well known and has lots of “fans”, it can help the valuation.
Finally, ensuring that the business can function without you is important.
It shows that the business can continue to operate after the sale.
This is one of the most attractive things ever to potential buyers.
They don’t want to buy a business that was dependent on the previous owner.
In conclusion, increasing your profit multiple involves giving the buyer peace of mind.
By showing them that your business is a good investment, you will attract more buyers.
And if you have a few buyers offering at the same time it will increase the chances of a successful sale.
– A subscription-based business model (if it’s possible)
– Generating more revenue,
– Having a strong brand reputation,
– Ensuring that the business can work without you.
They are all important factors to consider when looking to improve your profit multiple.
By addressing these issues, you can help to maximise the value of your business and secure a more profitable sale.
How to improve the value of your business
3. Document your processes and systems
Documenting and writing processes is a major way to increase the value of your business.
They walk into the business.
And there are clear and detailed procedures for every aspect of your operation.
Instead of, walking into the business and the owner saying “yeah they know how to do everything”.
It’s all in their heads though.
Having clear processes ensures that everyone in the team knows what to do.
They know what’s expected of them and how to carry out their tasks.
This can help cut errors, reduce wasted time, and increase productivity.
In turn, that can all lead to improved profitability.
Having documented processes can make it easier to train new staff members for the buyer. That means they should be able to perform their jobs well.
From a buyer’s perspective, having documented processes in place can be a dream.
Buyers are often looking for businesses that have a clear structure and are easy to run.
Having well-documented processes can help reduce the risk that the buyer feels.
The buyer will be able to see exactly how the business operates.
They will be able to step into their role with greater confidence.
Also, documented processes can also help to streamline the transition process.
It makes it quicker and smoother for both the buyer and the seller.
Having documented processes is a key part of increasing the value of your business.
Whether you are planning to sell your business soon or you want to improve its performance, documenting your processes is key.
Summary
Think about it, you’re no longer trying to sell boring old onions.
Instead, you’re selling the sizzling skewers.
With melt-in-the-mouth meat.
Cushioned with peppers, red onions and smothered in a delicious sauce.
All sat on a beautiful bed of tasty rice.
That’s what you need to do with your business.
Take it from being a risky, daunting task,
To being an exciting, secure investment for a potential buyer.
The way to do that is sat within those 3 tips.
- Improve your profit,
- Whilst increasing the multiplier you’ll get.
- And systemise the business.
If you do those things well, more buyers will be interested in your business.
The last thing you want is a small market.
Which is exactly what you get if YOU are still needed in the day-to-day.
Because if that’s the case, you can only sell to other people that share your skill set.
And even if they do share your skill set, why on earth would they want to buy a job?
So get the business to work without you, follow those 3 tips, and then, anyone with enough money can buy the business.
That’s a much bigger market.
And when you have a bigger market to sell too.
It will increase the value of your business.
