It’s the million-pound question, possibly quite literally… how can I increase the value of my business? There’s a lot of advice out there, but in this second of two blogs I want to take a look specifically at how you can increase value in a post-lockdown world.
Having already discussed recurring revenue and intellectual property in part one, this time I want to look at securing revenue and autonomy.
A lot of business, especially in the early days, is done somewhat informally. As the business has grown many of the original clients and suppliers who helped you get there have become more like friends. There is nothing wrong with this while you’re in the business, but for an outside acquirer who doesn’t have the same relationships it is a big risk.
But it’s not just about where basic or even no formal contracts exist, it is worth doing a full overhaul of all your contracts. Maybe you updated your terms and conditions, so some clients are on a different agreement to others. Perhaps some of your longest serving employees are on different contracts to more recent hires.
Recent contracts that are fit for purpose and easy to access will give interested parties confidence that they are buying a company that is as robust behind the scenes as it appears on the surface. For more, see our other blog: How to get your contracts in order before you sell a business.
One of the biggest risk factors when it comes to buying a business is the thought, what happens when the current owner leaves? The ideal scenario for a buyer is that the business is a fully capable entity in its own right, even without you in it. But we know the reality for most SMEs is that the owner often makes a sizeable contribution to the business.
The risk this presents to a potential buyer will exert a downward pressure on value as they look to mitigate against a fall in performance post-sale. An essential consideration in creating value in your business is making sure it works if you are not there.
It’s not just about cracking the whip and people working hard when the boss isn’t around, it’s about relationships and strategy. Are there any relationships that you own exclusively, or in which you are the primary point of contact? This could be client relationships or supplier relationships, or even professional bodies or accreditations. If the answer is yes, then you need to start thinking about how you can pass on some of those relationships to others in your team. It doesn’t need to advertise your intention to sell either, it’s just sensible contingency planning!
In relation to strategy, you need to ask yourself whether your senior management team is capable and empowered to make strategic decisions in your absence. This doesn’t mean relinquishing control completely but being able to demonstrate that your team can make day-to-day operational decisions and deal with minor issues without relying on your input. This will reduce the risk in the buyer’s mind of the company falling into a black hole within month one and exert an upward pressure on value.
The value of good advice
I have tried to give some examples above to get you thinking, but of course every business is different. There is no magic wand or one-size-fits-all approach, so one of the best things you can do to increase value is get the right advice. A company like Entrepreneurs Hub will make an honest and pragmatic assessment of your business and give you solid advice on what your business might be worth now and how you can increase that valuation. It doesn’t stop there though because Entrepreneurs Hub will work with you to implement a plan to achieve the value you want.
Entrepreneurs Hub can also introduce you to the best legal and wealth advice around, meaning every aspect of the process is covered and you are surrounded with a strong trustworthy team.
Why not give us a call if you are thinking about selling, or would like to know how you can increase the value of your business?