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8 ways to increase the value of your business

Increase the value of your business

When homeowners renovate/renovate/add on, they often think about the value-adding effect of doing so: "If I go for an addition and put money into it, will my house be easier to sell or worth more in the future?"

Business owners need to think about their business in the same way. With each step forward, an owner should ask themselves, "does this increase the value of our business?" And if selling the business is part of your exit strategy, it's wise to start planning strategies to increase value before you hang up the "for sale" sign. In this blog, we'll explain 8 ways to increase the value of your business.

1. Build a solid management team

A "one man show" is often a red flag in mergers and acquisitions, no matter how good your offer is. Buyers prefer to see a full team of proven professionals at the table, preferably having worked together for several years. This reduces the dependency on the DGA and therefore the risk of harm for a potential buyer after a transaction has taken place.

"A business that has rarely grown has less potential"

2. Growth

From time to time we see small to medium sized businesses that intentionally stay small. They like a family atmosphere in the office or they prefer to produce within their own comfort zone rather than expand. While that may be fine for the business at the moment, buyers want to see potential. A business that has rarely grown or expanded has less (visible) potential than one that has proven it can grow. If you want to be attractive to potential buyers, you need to be able to point to successful growth in your company's history.

3. Keep things tidy and up to date

Business plans, financial plans, records, and personnel plans should all be documented (not sitting in the owner's head) and kept current. Employment agreements, marketing plans and business goals should always be in writing and reviewed annually. Buyers see value in business owners who are organized. Especially on the financial front, it's a good idea to start early with clear reporting that provides insight into operations. Determine relevant KPIs and steer on them. Ideally, make a distinction in the financial analysis between the main products/services so that an outsider quickly understands how the business model works and what value drivers are in your company.

4. Create brand experience

Not everyone can be Apple®, Volkswagen®, or Coca-Cola® and that's okay, but be clear. Define your brand. Make sure you know what it is, that your employees know what it is (and propagate it), and that your target audience knows 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 doesn't have to be a bottleneck. What is important is that you are very clear and thoughtful when you define your brand and that it resonates with all stakeholders.

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5. Productize your service

It is more interesting for you as an entrepreneur, but also for a potential buyer, to generate annual recurring revenue with a customer. Subscriptions reduce the initial investment and create clarity for the customer, but it also ensures customer loyalty and stability in your financial planning. It is therefore advisable to consider whether your service lends itself to a different form of pricing. For example, switch from projects or hourly fees to subscriptions or fixed prices for your services. The larger the share of recurring revenues, the higher the value of your company.

6. Shoemaker, stick to your last

No organization is good at everything, nor should they be. Beauty is in simplicity. Take the time to figure out what your company is really good at and why it is good at it. It's often helpful to boil it all down to one term, such as "consumer product distribution." This has multiple benefits. It helps to clarify your strategy for the future. It gives customers (and potential buyers!) a clear understanding of what you do. And it helps you decide what NOT to do, which in some cases is a surprising way to increase the value of your organization.

7. Outsource your non-core activities

A logical consequence of point 5 is to outsource activities that are not part of your core competencies. If your company distributes consumer products and you need a new website, building it yourself may not be the best tactic. Hiring an outside agency to develop and manage your website probably makes a lot more sense. Depending on the core competency of your business, it may make sense to outsource the (payroll) administration, production, logistics or real estate needs. Let others do what they are good at, while you do what you are good at. Buyers like focus, they want you to be good at one thing and a network of good partners to take care of the rest.

8. Don't bet on one horse

A big problem with many small or medium-sized businesses is that their business is centered around just a handful of customers. Ideally, no single customer should represent more than 10% of sales. If the loss of one customer can hurt you significantly, your business doesn't have a solid foundation and buyers will see that as a big risk in a transaction. Try to find ways in which you can protect yourself from being overly dependent on a single customer, supplier, sales channel, etc. By managing those risks, you can help your business grow. 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 easier to implement than others, but most aspects take time, so plan ahead. If you are considering selling your business, contact us for a confidential discussion about your situation. We have extensive experience assisting business owners with the sale of their business. In addition, with our Zilvermeter(link) we can quickly determine to what extent your business is ready for sale.

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Stef Kolen
Stef KolenCorporate Finance Advisor