7 Ways to Increase the Value of Your Business
When homeowners make a major update to their home, they often think about it in terms of whether it will increase their property value. “If I complete this home improvement project, will my house be easier to sell in the future?”
Business owners need to think in the same way. With each step forward, an owner needs to ask, “does this increase the value of our business?” And if selling the business is part of your exit strategy, then it may be wise to start planning ways to increase value now, while you have time to implement the changes before putting up the “for sale” sign.
Here are 7 ways to increase the value of your business
1. Build a solid management team.
A “one-man band” can sometimes be a red flag in M&A, no matter how great your offering is. Buyers tend to prefer to see a full team of proven professionals at the table. In addition to the CEO, the executive team might include a CFO, a COO, a sales manager, and/or other industry-specific executive titles. Ideally, even if the business is too small to warrant a full Board of Directors, an outside advisory team is also wise.
From time to time, we see small to mid-sized companies that stay small on purpose. They like a “family atmosphere” in the office or they prefer to produce within their own comfort zone rather than expand. While that can be fine for that business at this moment in time, buyers want to see potential. A business that has rarely grown or expanded has less potential than a business that has proven it can evolve. No one is saying that you need to “go national,” but if you want to look appealing to potential buyers, be able to point at successful growth in your company’s history.
3. Keep a clean house.
A messy executive office only looks enticing on TV. Business plans, financial plans, all records, and personnel plans should all be in writing (not in the owner’s head) and kept current. Terms of employment agreements should always be in writing. Marketing plans and company objectives should exist and be reviewed yearly. All contracts should be reviewed and maintained on a current basis. Buyers see value in business owners who are organized and ready to sell.
4. Define your brand.
Not everyone can be Disney®, Kleenex®, or Coca-Cola®. That’s ok. But be intentional. Define your brand. Make sure you know what it is, your employees know what it is, and your target customers know what it is. Positive brand recognition creates value in every industry, whether you sell directly to consumers or not. Not every organization will have millions to spend on an expensive branding campaign and that is also ok. What is important is that you are very clear and very thoughtful when you define your brand and that it resonates with your target customer.
5. Know and love your core competency.
No organization is good at everything, nor should they be. Take time to sit down and figure out what your business is really good at. Often it is helpful to bring it all the way down to one term, like “consumer product distribution.” This has multiple benefits. It helps to clarify your strategy moving forward. It provides potential buyers with a clear understanding of what you do. And it helps you to decide what NOT to do, which in some cases, is a surprising way to increase the value of your organization.
6. Outsource outside your core competency.
If you are a consumer product distribution company and you need a new website, then building a website from scratch, in-house may not be the best strategy for you. Hiring an external agency to develop and manage your website likely makes a lot more sense. Depending on your business’s core competency, it may make sense to outsource payroll, manufacturing, logistics, or real estate needs. Let others do what they do best, while you do what you do best. Buyers don’t want you to be great at everything, they want you to be great at one thing and then choose great partners for the rest.
7. Diversify, if needed.
A major problem with many small or mid-sized companies is that their business is concentrated on just a small handful of major customers. Ideally, regardless of your industry, no customer should represent more than 10 percent of sales. If losing one customer can completely break you, your business is not standing on solid ground and buyers will want to avoid that risk. Look at your overall strategy to identify ways that you can protect yourself from relying too much on any one customer, supplier, sales channel, etc. By managing those risks, you add a lot of value to your business.
Keep in mind that each of these changes takes time to implement. Some are appropriate if you hope to sell in the next year, but many are not. Plan ahead. If you are considering selling your business, please contact us for a confidential discussion of your specific situation. We have experience helping business owners across all industries sell their businesses, as well as relationships with buyers who are interested in new opportunities.