Think Like a Buyer to Increase The Value of Your Small Business

Think Like a Buyer to Increase The Value of Your Small Business

Have you ever wondered what your business is worth? While the bottom line profit will certainly contribute to the value, many small business owners are surprised to learn that profit alone is not enough until it's too late.

If you want to maximize the value today and the sales price in the future, you must create a business that will operate effectively without you. The more dependent it is on you, the less value it will have to someone else.

Whether you want to increase the value today, turn it into a passive income stream or sell it outright to fund your retirement, it's time to start thinking like a potential buyer. Here are the areas you should consider:

Customer Diversity. If a large part of your business is dependent on a small number of customers, your business will have less value. Lose one of these customers and the sales and profit are at risk. Start focusing on diversification.

Systematization. A business where processes are streamlined and documented will always be more attractive and more valuable. Make sure you have written systems for all the critical business activities and daily operations, so tasks can be done consistently and quickly by anyone. No one person, especially the owner, is vital to the successful running of the business.

Recurring and Repeat Revenue. All revenue is not the same. Revenue that is linked to contracts or agreements is more valuable. Repeat business based on high customer retention rates is also more valuable. Focus on retention and look to create some recurring revenue streams in your business.

Unique Products, Services, or Technology. If others can easily replicate what you do, then your business will be perceived by others as a me too' business. Know what makes your business unique and communicate this uniqueness effectively. Your business will then be more attractive and likely less dependent on price.

Product Diversity. If your business is heavily dependent on one product or service, then future projected revenue may be riskier and less valuable. Look for opportunities to expand your products and services or package products and services in new or different ways.

People Your Team. The right people, with defined roles and clear goals, are a key to getting results. Make sure you have a system for hiring, training and developing quality people. Ensure everyone know the goals for the business and understand their role in delivering it.

Bookkeeping & Financials. Your financial records are a strong indication of how the business was run in the past. A good financial management system, like Quick Books, set up properly and maintained and updated will help you run your business better today and influence a buyer in the future. If you are not sure how to set up your system for both tax preparation and decision making, speak with your accountant.

If you follow the above tips, you'll be able to achieve more sales and profit from your business today and maximize the value in the future.

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