Five Ways to Increase the Value of Your Business
Want to grow your business revenues and increase your business’s exit value? Here are five of the most important ways to building business value:
1. Differentiation from the Pack—Develop Your Unique Selling Proposition
If low prices are your chief competitive advantage in a marketplace where prices are on the decline your customers will always find another supplier that offers special discounts or lower prices on certain items. This puts you at a competitive disadvantage and decreases the value of your business. To increase the exit value of your business you need to develop a unique connection to your market, or an expertise in serving your customers or a proprietary process. Having these distinct differentiators create a stronger company and increase the potential to sell your business at higher multiple.
2. Cross Sell
Cross selling refers offering services and products that are related but in different categories. Cross selling allows a business owner to pick up additional revenues that they may otherwise be leaving on the table for someone else to earn. An example is when Target started offering groceries in addition to the clothing and household items they normally sell. Another example is when a gas station offers a car wash on their premises. Both of these examples demonstration product / service diversification and create additional customers and traffic that might otherwise not visit their stores.
3. Seek Recurring Revenue
A key factor in making a business more attractive to potential buyers is to structure as much of your revenue as recurring as possible. There is nothing more comforting and reassuring than recurring or “automatic” streams of revenue from services such as subscriptions, service contracts, or monthly renewals. There are ways to structure at least some revenue as recurring; and, the more “automatic” the revenue stream is, the more valuable the business will be.
4. Build Customer & Market Diversification
Reliance on just a few customers for the success of your business is extremely risky and raises a “red flag” for potential buyers. The most valuable and sustainable businesses have many customers, each representing a small fraction of total sales. Most companies get started with just a few customers but over time the business owner needs to focus on diversifying his revenues with a broad customer base. Having only a few customers which make up your revenues significantly devalues your business if any one of your customers represents more than 20% of your sales.
5. Make Your Business Absentee
This is probably the most valuable improvement you can make to your business. Many more buyers are looking for a business that can be run remotely or through an existing team of managers. Many of the service-based businesses you find for sale tend to require the buyer to have some form of industry experience. Setting up your business to run absentee means that you can trust one or more employees to run the business successfully without your day to day involvement. This process can take several years to setup properly but is well work the effort because the exit value of a business is significantly higher when the owner does not need to be at the location during all business hours.