For many entrepreneurs, running a business has one key goal at the centre of everything: to use the proceeds of the business sale to fund their retirement plans.
You may have read our previous blog in which we discussed considerations you might want to make before exiting your business, including making sure any sale amount you ask for fits your wider life goals.
Of course, while this is no doubt important, you’ll still have years ahead of you to build and refine your business into an efficient machine before you reach this stage. This gives you the opportunity to put measures in place that can increase the value of your business over time.
So, with that in mind, here are seven factors that can increase the value of a business to a potential buyer.
1. Scale, and the potential to scale
The first thing to consider is scale. In essence, what buyers want to see is the current scale of your business, and the potential for it to be scaled up even further.
Where there’s scalability, there’s the opportunity to grow a business in terms of both customer reach and revenue. Understandably, that’s an attractive proposition to a buyer.
Equally, buyers don’t want to have to spend even more money to expand and grow the business after buying it.
From your perspective, that means putting effort into scaling up your business isn’t just about producing a short-term increase to sales; it’s an opportunity to create a long-lasting impact on your business’s value.
There are many ways to scale a business, from setting ambitious targets for all the different departments in your company, to pursuing a more aggressive marketing strategy.
Working with a financial expert can be transformative here as they can find the most appropriate ways to help you scale your business.
2. Consistency in revenue
The next area you could work on is creating some consistency in the revenue of your business.
A major concern for a buyer is the amount of money they can make from your business. That’s why knowing that the business will reliably produce income is key for them to be willing to part with their own cash.
Sometimes, proof of consistency can be more important than the size of the figures. For example, having a record-breaking month is a great sign that your business has potential. But, from the point of view of a buyer, consistency can be even more attractive, as it proves that your business is resilient and has a track record of solid performance.
3. Good cash flow
Alongside consistency in revenue, a strong and well-evidenced cash flow can be a huge factor for any potential buyer.
Cash flow matters because increasing your company’s liquid assets proves the business’s ability to reinvest in itself.
At the same time, this also ensures there’s capital left for paying loans, returning money to shareholders, and as a buffer in case of unexpected expenses.
A buyer needs to know that the business and its assets are on the way up, not decreasing. That’s why looking at ways to boost cash flow could push your sale price up.
4. The expertise of your team
As you no doubt know, experienced employees are one of the most valuable assets you have in a business. That’s why buyers value the expertise of those already working in your business.
Potential buyers can be confident that the business will continue to operate at its current high levels without you if you have a team of knowledgeable workers who are working to deliver your products or services.
Additionally, you may be able to ask for more if a buyer knows that you’ve invested in your staff to increase productivity.
5. Strong management
In a similar vein to the expertise of your team, a strong management structure can give a buyer confidence that your business can continue at its current level of performance.
A consistent management team can be a great way to prove to a buyer that the process of taking your business on will be straightforward, rather than requiring their time, effort, and money to build these structures themselves.
It also proves that the business will be able to function without you, an issue that affects many businesses when a founder steps down. Alleviate these concerns for buyers by delegating to your management team and sharing responsibility around the business.
6. A clear market position
In general, most businesses need to have a clear and transparent proposition and market position to succeed. You no doubt have cultivated your own market position, and you need to make sure this is clear to potential buyers.
Find ways to demonstrate your brand awareness and how your business distinguishes itself from your competitors. You even could take a data-driven approach to this, using customer surveys to prove that you’ve created a recognisable brand.
Similarly, this shows buyers that you have a target market, too. Having a muddy or opaque profile of your desired customers is another potential red flag for them, giving them more work to do after buying your business.
In short, a clear business vision and direction clearly shows a buyer what your business is trying to do and who it’s trying to sell its products or services to.
7. Healthy, long-term relationships with customers and suppliers
Running a business means creating links with everyone you work with, whether that’s with the customers and clients you serve or with the suppliers you rely on.
The longer these relationships have been going on, the healthier they’re likely to be, too. Satisfied repeat-customers present a reliable source of income. Similarly, good relationships with suppliers increase the chances of good prices and punctual deliveries or service.
Being able to prove that these links exist can be useful in two ways. Firstly, it reassures buyers that the transition will be smooth and straightforward as they take the reins. Secondly, and perhaps most importantly of all, healthy relationships show your commitment to a positive work culture. This can go to show them what kind of a person you are, giving them confidence that they’re working with an upstanding and honest individual.
Work with us
If you’d like help making your business run even more effectively so you can give its value a boost before you want to sell it, you should consider working with us at Cordiner Wealth.
We’re experts in helping business owners like you to refine their business strategies, increasing your efficiency and productivity in a variety of areas.
Email email@example.com or call 0113 262 1242 to speak to an experienced adviser.