5 Things that will Drive Your Business Valuation Up
Second only to how much is my business worth, one of the most common questions we are asked is how can I increase my business valuation? As corporate finance experts, who help to sell businesses, our primary aims are to advise business owners on how to find the right home for their business.
Defining what the right home means is never simply about price, but achieving a business valuation that is acceptable to the shareholders is often a major part.
People will sell their business for a broad array of reasons. For some, it’s time to retire and take the pace of life down a gear. For others, they’ve decided to try their hand at a different venture. Each sale we help achieve is totally unique and this is one of the challenges when it comes to determining value. (See our LinkedIn Blog: 5 Common Mistakes When Valuing A Business)
One of the biggest issues with standard desktop business valuation using a multiple is that it doesn’t take into account all those value drivers that are not shown in your accounts. Those things could make your company more valuable and help increase the multiple that a prospective buyer is willing to pay for your company.
So, how can you capitalise on these aspects of your business and drive value in your business sale? Here are 5 things that will drive your business valuation up.
1. Growth potential of the business
How it influences business valuation: Your organisation’s future ability to generate larger profits, expand its workforce and increase production will influence the level of interest and potential valuation from prospective acquirers.
How you can develop this: Create and formalise credible business plans that illustrate the future growth potential alongside supporting notes that demonstrate the achievability of these plans.
2. Recurring revenue
How it influences business valuation: Risk is a major influencer on business valuation – the lower the perceived risk, the higher the valuation. One of the things that has a significant impact on risk is the proportion of the company’s revenue that is recurring and dependable. Subscriptions, service and maintenance contracts, and licencing agreements are great value drivers, but being able to demonstrate longevity and repeat business should not be underestimated either.
How you can develop this: It’s good practice to review your client base, wherever contracts are in place, the longer the better. It may also be worth considering if you could transition or introduce a subscription-type model, services and maintenance contracts that will generate recurring income. In either case, you want to show buyers what portion of your company’s revenue is predictable and stable and how it can be counted on in the future with a high degree of certainty.
3. Scarcity
How it influences business valuation: Scarcity essentially refers to the level of difficulty a buyer would have in replicating aspects of your business without making an acquisition. It could refer to skill sets, experience, product development, manufacturing techniques, and a whole host of other things, including how often businesses like yours come up for sale.
How you can develop this: There are three things you should do to make the most of scarcity in a business sale situation. Identify, document and protect. Identify – because sometimes, when we are in the day-to-day, we don’t recognise the scarcities right in front of our faces. Document – so that you can demonstrate these to a potential buyer. Protect – it is worth reviewing contracts, patents, trademarks etc. so the buyer can be confident the scarcity won’t disappear once the deal is done.
4. The buyer’s motive
How it influences business valuation: One thing that is often overlooked when it comes to business valuation is the motive of the buyer. This can make a big difference to the price they are prepared to pay. The best prices are often forthcoming from companies who have a strong strategic motivation for acquisition.
How you can develop this: This is mostly something that is influenced during the negotiation phase of a deal, once you know more about what the motives of the buyer actually are. However, it is worth spending some time reviewing how the existing infrastructure of your business can help bring various possible strategic motives to life for certain types of acquirers.
5. Impact of having options.
How it influences business valuation: Having numerous interested buyers can have a significant impact on the multiple that someone might pay for your business, simply because there is now competition. Acquirers now have to consider the implications of not making a good offer. It changes the mindset to ‘How much do we want this company and how much are we prepared to pay?’ If you don’t have a choice, you will never know the true market value of your business.
How you can develop this: Get help with scoping out various potential buyers so that you can market your business more widely and create a ‘bid’ atmosphere that sparks healthy competition – and gets you results.
None of these value drivers are highlighted in your accounts, yet they can definitely drive the ultimate value of your business. Make sure you have ample information at the ready when you’re talking to buyers – not just the last 3 years’ accounts.
Are you wondering ‘How much is my business worth?’ Need more help highlighting the value drivers for your company and achieving your maximum business sale? Here at Entrepreneurs Hub, we work closely with our clients to ensure they are clear on their value drivers, including those that are not included in the financials. We’ll help you get properly prepared and then proactively market your business for sale by identifying a choice of interested buyers, presenting the opportunity to them and negotiating the sale. Our goal for our clients is to find the best home on the best terms and most importantly achieve the best price.
If you would like guidance on the valuation of your business or would like to discuss your exit options, please contact us, call 0845 067 8678 or email info@entrepreneurshub.co.uk
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued by applying a multiple to its sustainable profit, often EBITDA or adjusted net profit. The appropriate multiple depends on factors including growth, recurring revenue, customer concentration, management strength, owner dependency, market conditions and buyer demand.
Determining what your business is worth involves more than applying a simple formula. Use our Business Valuation Calculator to obtain an initial valuation range, or read our simple business valuation guide to understand the factors buyers consider.
How long does it take to sell a business?
Selling a business in the UK typically takes around 12 to 18 months from initial preparation to completion, although some transactions may be quicker or take longer. The timeline depends on business readiness, buyer demand, deal complexity, due diligence and how quickly the legal terms can be agreed.
Preparing accurate financial information and organising key documents in advance can help reduce avoidable delays. Read our complete business sale timeline to understand what happens at each stage.
When is the best time to sell a business?
The best time to sell a business is usually when it is performing strongly, its future growth is clear and you are not under pressure to complete a sale. Buyers are generally more attracted to businesses with rising or stable profits, reliable financial information and credible opportunities for further growth.
Business owners are often in a stronger position when:
- Revenue and profits are growing or consistently strong
- Financial records are accurate and up to date
- Future growth opportunities can be clearly demonstrated
- The business is not overly dependent on the owner
- There is a capable management team in place
- The owner has started preparing well in advance
Market conditions can also affect buyer appetite and valuation. Factors such as sector growth, access to finance and competition between buyers may support stronger deal activity, but preparation and business performance are usually more important than trying to identify a perfect month to sell.
Ultimately, the best time to sell is when both you and the business are ready, and the company can demonstrate sustainable performance and future value to potential buyers.
Use our Exit Readiness Tool to assess how prepared your business is, or read our guide on when to sell your business for further guidance.
Do I need an adviser to sell my business?
You are not legally required to use an adviser to sell your business, but many owners appoint an experienced M&A adviser to help manage the process. An adviser can prepare the business for sale, identify and approach suitable buyers confidentially, coordinate negotiations and support the transaction through due diligence.
The right adviser can also help create competitive tension, protect your time and reduce the risk of avoidable mistakes. Read our guide to choosing the right business sale adviser to understand the different types of support available.
How do I prepare my business for sale?
Preparing a business for sale involves strengthening its financial performance, reducing risk and making sure it can operate successfully without heavy reliance on the owner. Buyers will also expect accurate financial records, clear contracts, organised documentation and evidence of future growth.
Preparation should ideally begin well before approaching the market, giving you time to address weaknesses that could affect value or delay the transaction. Use our Exit Readiness Tool to assess how prepared your business currently is.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymised buyer approaches and non-disclosure agreements. Potential buyers usually receive limited information at the start of the process and must sign an NDA before commercially sensitive details are released.
Prospective buyers should be assessed before receiving further information, with documents shared gradually according to their level of interest and credibility. A well-managed process also allows the business owner to retain oversight of who is approached and what information is disclosed.
What documents do I need to sell my business?
The documents needed to sell a business commonly include financial accounts, management information, forecasts, customer and supplier contracts, employment records, tax information and evidence of intellectual property ownership.
Buyers may also request details of property, insurance, legal disputes, regulatory matters and company ownership. Organising this information before due diligence begins can reduce delays and help maintain buyer confidence. Our Business Sale Due Diligence Checklist explains the main information buyers are likely to request.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…
How can I increase the value of my business before selling?
You may be able to increase the value of your business by improving sustainable profits, developing recurring revenue and reducing reliance on individual customers or the owner. Buyers also value capable management teams, reliable financial reporting, scalable operations and clear opportunities for future growth.
The earlier you identify the factors affecting value, the more time you have to make meaningful improvements. Use our Business Valuation Calculator for an initial indication of value and our Exit Readiness Tool to identify areas that may need attention.