Increase the value of your business now so you can sell it for more later.
Want to make your business worth more money? Let’s explore 4 reasons to increase the value of your business and a simple framework to optimize your business so that it is worth more when you want to sell it.
The step-by-step process of selling a small business
- Learn how much to sell a business (→ Read more)
- Learn how to increase the value of your business before you sell it (that’s what THIS article is about)
- Build your exit deal team, list the business for sale, meet with buyers and negotiate the deal
Step 1 – How to calculate the value of your business
Business owners typically invest years of their lives and make many personal sacrifices to build their companies. If you’re planning to sell your business, knowing how much you want to sell it for will help reduce uncertainty and also help you understand what makes a good offer when potential buyers come around.
Knowing how much to sell a business for is not easy. The value of the business depends on your finances, potential for growth, customer relationships and how solid your operations are.
Here’s content that goes into much more detail about business value: Want to know how much your business is worth and why? Understand how much to sell a business
The most common way to calculate the value of a ‘smaller’ business (defined as < $2 million in annual revenue) is to multiply your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, a measure of profitability) with a factor (called a 'multiple') that is based on industry standards and the unique aspects of your business. This factor is called the 'ebitda multiple' and can vary anywhere from less than 1 to more than 10.
Related Content: Top 6 Most Valuable Online Businesses in 2024 |
Is my business ‘too small’ to sell?
No, no business is too small to sell. It is a common misconception that businesses below a certain revenue threshold are not valuable from a buyer’s perspective.
I like to demystify this by pointing out that businesses < $2 million in annual revenue are being sold every day. Read more about it HERE.
Why it is important to increase the value of a business
When I work with clients, one of the first things I ask is how much money they want in their pocket at the end of the sale. Many don’t know, which means there is work to be done.
For those who have a number in mind, we look at what it will take to achieve it, given the current state of their business. This helps determine whether they need to spend a few more years working to increase the rating or are ready to go for an exit now.
Related Content: How to come to terms with a low business rating?
4 reasons to increase the value of your business
It is important to increase the value of your business for 4 reasons:
- It measures your success and potential for growth.
- This results in a bigger payout when you sell your business.
- It can help you raise more capital in exchange for less capital.
- It can provide employees with job security and give meaning to their work.
Step 2: How to increase the value of a business
You can use a simple but effective acronym called Four EXIT Habits™. Here’s a quick summary:
And for external habits:
Your business needs to have a strong company brand and be marketed effectively to be worth a premium price when you sell it. If your business is built on your personal brand, it’s time to move on to building a company brand.
X for extension habits:
Growth potential is what makes a business attractive to a potential buyer. Make sure you have a ‘blue ocean’ strategy in place to stand out from the crowd and claim price control.
I for domestic habits:
The core of your business must be built in a solid way. Adjust your organizational structure: from team building, to decision-making processes and the implementation of SOPs (Standard Operating Procedures).
T for tangible habits:
Measurable metrics of business success and value are: revenue, recurring revenue, profit and cash flow. Make sure these parameters shine to be able to claim a premium price.
Getting these Four EXIT™ Habits right can mean the difference between an unhappy exit and a 7-figure exit.
Related Content: HOW TO INCREASE THE VALUE OF MY BUSINESS BEFORE I SELL IT?
Conclusion: Why increase the value of a business, before selling
The value of your business is a direct measure of your success and potential for growth. Its increased value results in a larger payout when you sell your business. These are all great reasons to increase the value of your business before you sell.