If you’re considering how much your business is worth, it’s possible that you’re focusing on completely the wrong numbers. It’s true that a business’ value all boils down to one equation: the multiple of the profits that the acquirer would be willing to spend to buy your company. However, most business owners make the mistake of believing that the most effective way of improving their company’s value is to increase their profits. For this reason, they work on finding ways to increase the amount that they sell and, as they’re experts within their field, it’s only natural that clients and customers are keen to engage personally with them. That means spending a lot more time meeting clients face to face, speaking on the phone and traveling to increase their sales.
When a business owner adopts this model, it’s true that their company can grow slightly, Yet, the owner’s own life becomes considerably more challenging. Clients demand a lot more service and time. The business’ employees start to burn out. Soon, it begins to feel as if there aren’t sufficient hours in a day. Health starts to suffer, relationships become strained and revenue flatlines. All of this comes from working too hard and too much.
If this feels all-too-familiar, it’s time to look at which numbers really matter for your business.
Which Numbers Matter?
When you spend too much effort and time on increasing profits, the company’s overall value can actually diminish. So, what’s the solution? Remember that we said above that the important equation is a multiple of the profits that your business’ acquirer would be willing to spend to buy your company? You need to instead focus your efforts on driving that multiple. By doing this, your company’s value can actually grow, improving your profits and redeeming your freedom.
So, what is driving your multiple? Here, we take a closer look at some of the key factors that you should be concentrating on.
Your Differentiated Market Position
Buyers only purchase what they can’t easily create for themselves. Therefore, you can expect your business to be worth more to a potential purchaser if you’ve got a monopoly over what you’re selling, or you’re one of just a handful of companies with a license to supply the specific service or product within your market.
Plenty Of Runways
Although most business owners think that having a larger market share is something they should be striving towards, in the eyes of business acquirers, this may actually reduce the company’s value since most opportunities have already been stopped up.
Recurring Revenue
Buyers will need to know how well the business will cope if you leave. If there is plenty of recurring revenue, this will assure them that even when you’ve left the company the business will continue to thrive.
Well-Kept Financials
The profitability and size of your business matters to potential investors and the quality of bookkeeping is something that will be extremely significant to anyone who wants to buy your company.
Seeking Professional Advice
If you’re seeking an effective exit strategy to leave your business, it’s important to get help from a team of professional consultants. Visit CBS-CBS.com to find out more about how our expert team can give you the help and advice you need.