The value of your business comes down to a single equation: what multiple of your profit is an acquirer willing to pay for your company?
profit × multiple = value
It’s a simplistic equation that is used to ballpark the value of a business for sale.
Many business owners believe that in order to increase the value of their company, they need to become more profitable. Makes sense, right? Bring in more money, a high-quality buyer will be willing to pay more for your business. And after all, you love your business and genuinely enjoy engaging with your customers. This helps both of you – the customer gets a responsive, approachable business relationship and you get increased business.
However, focusing on increasing your profit means spending more time on the road, making face-to-face sales and growing your business through shoe leather. The business may grow but at what cost? The owner’s quality of life. As the business grows and customers demand more, employees start burning out on the frantic schedule. Revenue flattens and soon you’re wishing there were just more hours in the day for work.
Profit is very important, but think about the other half of the equation as well – focus on your multiple. Let’s look at a few things you can do to drive your multiple, increase your value and still be able to come home at night.
First thing’s first – what is the multiple?
Simply put, multiples are the tangible benefits to a potential buyer that are not the profit. Think of it in a military context: Generals in the field are always looking for “force multipliers.” This isn’t simply more soldiers to wage a war, but tactical advantages that help the men that they already have. Air dominance or fighting from the top of a fortified hill, is considered a force multiplier.
Your multipliers are exactly the same. What makes your already profitable business more valuable.
What Drives Your Multiple
Differentiated Market Position
If you’re one of the only games in town, you have a pretty strong argument that you are far more valuable. Remember, that those buying your business will only buy what they can’t create themselves. If you’ve got a monopoly on a market in an area, you should expect to be compensated for that fact.
Lots of Runway
Headed back in the other direction, if your business has already mopped up a lot of the business in an area, the value of your company may go down, as the opportunity to easily expand is diminished.
As true in your personal life as it is in business. Keeping clean books that are well organized show potential suitors that they are purchasing a mature company.
The “You” Factor
Recurring value is important, but it’s important to recognize that you built the business. Purchasers know this, and the most valuable businesses are able to thrive without their owner but still extract great value from the direction they set.
Do you want to improve the value of your business?
That’s what we’re here for. ResCon specializes in preparing your business for sale, getting top dollar and helping that sale to close. And, your business is probably worth more than you think it is, meaning you can sell sooner than you think.
There is life after your company and you deserve to start living it.