The key to building value in your business is to plan the process in a systematic way, whether you are aiming to grow the business or groom it to get a better price from a buyer.
Looking through the eyes of buyers
Whether you just want to build a stronger business, or you are looking ahead to the day when you might want to sell it, it helps to think of your business through the eyes of a buyer.
- Identify any weaknesses they might see in your business and what you can do about them.
- Think about the strengths that may attract them and how you can reinforce these strengths.
Here are some of the strengths buyers will be looking for.
Work on stability
The longer your business has been operating, the easier it could be to sell, provided it has a solid track record.
- Keep well-documented business performance and tax records.
- Document business history and projects completed or customers gained.
Develop reliable markets
A strong history is reassuring, but buyers will be more interested in the future.
- Show evidence that your main market(s) are growing or at least stable rather than declining.
- Demonstrate you’ve taken steps to change your market position, if necessary. For example, a motel may be able to grow by making steady improvements to its facilities, moving up market and, therefore, increasing its prices.
Nurture a stable customer base
A well-managed customer database is one of the most valuable assets as it can be used in many ways for marketing and gaining referrals.
- Improve and update your customer database.
- Start measuring customer retention rates and customer referral rates.
- Implement a customer loyalty program and referral incentives. Buyers will want to know that key customers won’t leave if you do.
Secure your cash flows
Stable future cash flows are critical to the value of a business. Buyers will want evidence of reliable revenue streams coming into the business.
- Start building more diversity and therefore resilience into your customer base if you are too reliant on a few major customers.
- Look for ways to develop more revenue streams by adding extra services or products and lock in stable revenues through customer loyalty programs and contracts.
Refine marketing tactics that work
Buyers will want to know what tactics have worked best for your business.
- Document your marketing strategy and your promotion plan tactics for the next 12 months.
- Demonstrate how you measure all marketing to identify the best and eliminate what is not working.
- Identify what you are doing to expand your markets and distribution channels.
- List some still unexplored areas that could offer potential, such as a better website or social media marketing.
Maintain tight financial control
Excellent financial management will show up in your credit history – something you can be sure a buyer will check out.
- Keep improving your money management skills through cash flow and profit forecasts and budget reports.
- Show you understand and monitor the key performance drivers in your business.
- Demonstrate, in particular, that you have credit management under control and that your average debt collection time is at least as good as the industry average.
"Good systems make the transition to new ownership much easier."
Develop great business systems
Good business systems add considerable value to any business because they allow you to spend more time working on your business rather than in it. They also make the transition to new ownership much easier.
- Prepare your business as if you are planning to franchise it.
- Start building an operating manual that documents all processes in simple, easy-to-understand steps.
- Show how good systems enable faster training and enable staff to cover for absent employees.
Grow your brand
A buyer will see significant value in an established and respected brand that differentiates your business from competitors.
- Work on developing a brand that captures the essence and unique selling points of your business.
- Take any necessary steps to enhance or reinvent your branding.
Protect your intellectual property (IP)
The IP your business owns can add considerable value to your business, but only if it is well protected.
- Review the US Patent and Trademark Office (USPTO) website. Protecting your logo and brand as a trademark is an essential step.
- Consult a patent attorney or IP expert about protecting any designs, inventions, copyright material, or other IP that will add value.
Build strategic alliances
Strategic alliances can be an important source of growth and added value.
- Consider what extra skills and resources you lack to exploit opportunities you are missing.
- List and approach businesses that could help you gain work your business couldn’t normally deliver on its own.
- Contact businesses that have more extensive distribution and sales channels.
Lock-in key employees
Dedicated and experienced staff can be a key asset in the eyes of a buyer, especially if they’ve helped you create a valuable business.
- Ensure you provide opportunities for career progression and use incentives to align pay with the value that your staff create.
- Make your business an attractive place to work. Good working conditions and competitive wages will help to retain skilled staff.
- Look for people who can create value for your business, and managers with transferable skills who can help you build growth.
- Work through this lesson again to select and act on the most important items that will add the most value to your business.
- Strengthen your business systems and take steps to protect your physical and IP assets.
- Ask an accountant to help you identify the key drivers for your business and start monitoring them.
- Ask your accountant and advisers what other steps might add value to the business and help to future-proof it.
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