Your business is the most valuable to you as the owner because you have spent time and effort creating it from scratch. However, something valuable to you may not be to others. Many small business owners plan to sell their businesses and live off that money. And who wouldn’t like to get the most out of the business they have spent a lifetime building? Yet many business owners are just putting money on the table by not improving their business value for a buyer.
In this article, we will understand what a buyer looks for in a business and how to make your business more attractive to the buyer and get a premium price.
What is The Value of Your Business?
The value of your business depends on what the buyer wants and how much he or she is willing to pay for it. If you view your business from a buyer’s standpoint, you can identify value drivers and value crushers and work towards improving them.
Coming back to the question, what does a buyer want? A buyer is looking for a business with profits and healthy cash flows. A company that can thrive in the market and has a unique selling point. You can value your business using different approaches depending on what the buyer wants or where the strength of the business lies.
Tips to Improve the Value of Business
If you identify the ideal valuation approach for your business, you can devise a strategy to focus on areas that add value, enhancing your overall business valuation.
Enhance the Value of Your Business Asset
The asset approach is effective when your business has unique assets like property, equipment, or expensive inventory (artworks). The value of your assets will be adjusted for ageing stock and debt to arrive at a business value. If the asset valuation approach is fit for your business, you can invest in property maintenance, upgrade equipment, and make modifications that can increase the value of your assets.
For instance, if your business owns two vintage cars, you could invest in their maintenance and polishing to make them attractive to buyers. If you own a retail store in a prime location, you could upgrade it with modern amenities to enhance its value.
The Unique Selling Point of Your Business
Most businesses take the acquisition route if the entry cost of starting a business from scratch is high. For instance, building a loyal customer base and a brand reputation in a competitive market takes time, effort, and cost. Some businesses also have to spend time training staff and developing products and services. If a business can acquire an already established company for less than the cost of building from scratch, it would save time and effort.
If your business has reached a moat in the market, it could be a unique selling point that gets you more premium. You can strengthen your moat by building a bank of favourable customer testimonials, maintaining a strong online presence, and staying on top of your marketing. Marketing your business can make it stand out and attract relevant buyers with deep pockets.
Improve the Cash Flow and Retained Earnings
A buyer would be interested in a profitable business with stable cash flows. However, most business owners make the mistake of removing all the cash from the business. While you don’t want to keep too much money in the business, you cannot let your balance sheet run dry on cash. It might make the buyer disinterested.
You can seek expert help to determine how much-retained earnings you need to keep. A professional accountant can also help you find ways to cut costs, control inventory, reduce debt, and increase operational efficiency to boost profit margins and increase cash flows. Higher cash flows can increase the value of your business using the discounted cash flow method. This method projects future cash flows and discounts them with the time value of money to determine the present value.
Build a Business that Can Thrive Without You
Business owners should always try to build a business that can function without them. This involves building robust operations processes, training modules, and standard operating procedures to help new owners take over and continue the business without affecting revenue or profit. Such companies attract investors and buyers looking for lifestyle businesses that can give them regular cash flow.
Where To Start?
Before implementing the above strategies, an excellent place to start would be to get your business valued by an independent valuation expert. They will look at your books of accounts and suggest the best valuation approach for your business. The valuation report will evaluate the business performance, highlighting the areas you need to work on. You can accordingly work with a business consultant in those areas and monitor the outcome of your efforts.
Contact McCay Duff LLP in Ottawa to Help You Enhance Your Business Value
Talk to our business consultants or valuation team to help you prepare and analyze financial statements to value your business fairly. At McCay Duff LLP, our accountants and business consultants can help you build a valuation improvement plan, monitor the improvements, and make your business attractive to a buyer. To learn more about how McCay Duff LLP can provide you with the best business consultation, contact us online or by telephone at 613-236-2360 or toll-free at 1-800-267-6551.
