09 Mar 15 Ways to Increase the Value of Your Business
Whether you are looking for an increase in future income, or future growth in value, here are 15 ways to increase the value of your business.
First, let’s talk about value.
Business owners tend to think about business value growth when they are planning to exit the business. Regardless of if you want to sell the business, or simply retire and pass it on to family or friends, improving the business value is always beneficial.
Business value growth is rarely done overnight, and I always recommend you start as early as possible. Ideally, you should keep business value in mind from the moment you start your business, and make smart decisions that will help you grow value over time.
HOW IS BUSINESS VALUE CALCULATED?
The value of a business depends on two factors: the future predicted profits, and the risk factor.
A business with low predicted profits and high risk would be perceived to have very low value. A business with high future profits and low risk will typically have a high value. Keep in mind that we are talking about the future profit potential, not how much money the business is currently making.
So these are the two factors we can work on improving in order to increase value. Either increase the future predicted profits, or reduce the risk.
Potential sales: Proving that you have a large base of potential future customers is one of the key things to do if you want to increase your perceived future profits. Increasing your current profits is also beneficial.
See more ways to increase your profits.
Reducing the risk
Keep key people: If you manage to keep the important employees in your business after you sell or leave, its likely that the business performance will stay the same. This will reduce the risk greatly.
Build recurring income: A stable, recurring income with regular sales, direct debit or subscription payments reduces the chances that sales will go down after the business is sold.
Diversify products: Having a variety of products or services means your business can survive even if one of these products lose popularity.
Settle any tax disputes: Ensure that any taxes owed is paid off to improve cashflow and reduce the risk of penalties.
Ensure binding legal agreements with key suppliers and key customers: Make great deals and make sure that these last, even after you sell or exit the business.
Enough cash to fund day to day activity: Make sure there is money in the bank so you don’t end up stuck in your overdraft.
Security of tenure for premises: Make sure that the business can stay where it is.
Ensure key asset have backup plans: Any asset you have, like machinery or employees, need to have a backup plan in case of failure.
Build a business plan that works independant of individuals: If you structure your business growth around a team or a person, the business will still function if individuals leave.
Create a supportive organisational structure: Be mindful of how your business is organised, and verify that the structure works well.
Have a working marketing and sales system: A marketing system that generates sales independent of any person keeps your income more stable.
Have a strong brand identity: A brand people can recognize independent of you or any one individual.
Register your Intellectual property: Get patents for your inventions, logos etc., to keep these within your business.
Have a strong record of profits: Having a history of stable and regular profits means that your business is likely to stay profitable.
Obviously, there is more to it, but these are the basics of growing your business value. Building a stable, profitable business that has stable growth over time is the ideal you want to strive for. We advice our clients to keep business value in mind from the moment they start in business, by using great KPIs, and setting business goals.
If you want help planning your exit, book a call with one of our experienced advisers today.
Alan Davidson is a Chartered Accountant, director and founder of Pentins Business Advisers, entrepreneur and author of the Amazon best-seller “Achieve Your Business Vision”. With over 25 years of helping businesses succeed, Alan knows how to build a business with real value, while avoiding costly mistakes.