Following on from our earlier post on 5 Great Ways to Add Value to Your Business, here are 5 More Ways to Make Your Business Valuable.
But first, and to recap, the previous article mentioned 1) building repeat business 2) making the business less dependent on you 3) making your business cash-generative 4) building scalability and 5) taking care of the relationships that count. Clinton Lee, a business broker adviser, provides five more tips:
6. Pay lots of tax. Businesses try to construct their accounts to pay as little tax as possible. This is a mistake. As counter productive as it may seem to pay more tax than necessary, it’s a good idea to do so in the run up to selling a business. Declare an additional £1,000 in profit and you’ll pay £190 more in corporation tax but you’ll increase the value of your business by several multiples of £1,000. As an illustration, if a buyer has valued your business at 5x net profit, you’ve lost £190 in tax but gained £5,000 in value. It’s a no brainer. Even if for several years you’ve been declaring “more profit than necessary”, you’ll still recover all of it and then some when you sell!
7. Keep immaculate records. Buyers love good records as good records usually indicate a well run business. Accounting records should be computerised and lend themselves to easy analysis and the extraction of intelligence / breakdowns / management data. Financials should ideally be supported by other documentation such as budgets, projections, a business plan, contingency plans, growth targets and strategies etc. Buyers also like to see bills being paid on time, banking covenants being met, debtors being followed up. Good control over legal, HR, tax, environmental and regulatory related records and documents is also key. Proper operation manuals, guidelines, company rules etc., say a lot about how your company is run.
8. Related to the very first tip about building repeat business is building recurring revenue. Having repeat customers is great. Having them signed up to a subscription payment plan is even better – it’s repeat customers on steroids and adds significant value to your business. Think recurring revenue is only for SaaS or tech businesses? You couldn’t be more wrong. Even many high street retailers can build some element of recurring revenue into their business model.
9. Remove risk. The higher the risk buyers perceive in your business, the lower the price they’ll be willing to pay. Identify areas of risk and deal with them. Is too much of your turnover coming from one (or a few) key client(s)? Are all your sales being driven by one sales person? Are you highly reliant on a particular supplier? These are all risks that buyers WILL identify when assessing your business. If these risks exist, they will damage value.
10. Use a professional to handle the sale of your business, and get them in as early as possible so they can advise on what needs to be fixed to ensure best price. The value that a good adviser can add to your business is generally several multiples of what you’ll pay them in fees. And the earlier you get them in, the better.
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