Increase the value of your business now so you can sell it for more in the future.
Do you want your business to be worth more money? Let’s explore 4 reasons to increase the value of your business and a simple framework to optimize it so that it is worth more when you want to sell it.
The step-by-step process for selling a small business
- Know how much to sell a business for (→ Read more)
- Know how to increase the value of your business, before selling (that’s what THIS article is about)
- Build your exit deal team, list the business, meet with buyers and negotiate the deal.
Step 1: How to calculate the value of your business
Business owners often invest years of their lives and make many personal sacrifices to build their companies. If you plan to sell your business, knowing the amount you want to sell it for will help reduce uncertainty and will also help you understand what constitutes a good deal when potential buyers come along.
Knowing how much to sell a business for is not easy. Enterprise value depends on its finances, growth potential, customer relationships, and the strength of its operations.
Here is content that details much more about the business value: Do you want to know how much your business is worth and why? Understand how much to sell a company for
The most common way to calculate the value of a “smaller” company (defined as <$2 million in annual revenue) is to multiply its EBITDA (earnings before interest, taxes, depreciation and amortization, a measure of profitability) by a factor ( called 'a multiple') that is based on industry standards and the unique aspects of your business. This factor is called the "ebitda multiple" and can vary between less than 1 and more than 10.
Related content: The 6 main online companies with the highest value in 2024 |
Is my business “too small” to sell?
No, no business is too small to sell. It is a common misconception that companies below a certain revenue threshold are not valuable from a buyer’s perspective.
I love debunking this and highlighting that companies with less than $2 million in annual revenue are sold every day. Read more about this HERE.
Why it is important to increase the value of a company
When I work with clients, one of the first things I ask is how much money they want to have in their pocket at the end of the sale. Many don’t know it, which means there is work to do.
For those who have a number in mind, we look at what it will take to get to that number, given the current state of your business. That helps determine if they need to spend a few more years working to increase the valuation or if they’re ready to exit now.
Related content: How to deal with a low business valuation?
4 reasons to increase the value of your business
It is important to increase the value of your business for 4 reasons:
- Measure your success and growth potential.
- It results in a larger payment when selling your business.
- It can help you raise more capital in exchange for less capital.
- It can ensure employees’ job security and give meaning to their work.
Step 2: How to increase the value of a company
You can use a simple but effective acronym called Four EXIT Habits™. Here’s a quick overview:
E for external habits:
Your business must have a strong corporate brand and be marketed effectively to be worth a premium price when you sell it. If your business is based on your personal brand, it’s time to move on to creating a business brand.
X for expansion habits:
Growth potential is what makes a company attractive to a potential buyer. Make sure you have created a “blue ocean” strategy to stand out from the crowd and demand price control.
I for internal habits:
The backbone of your business must be built solidly. Get your organizational structure in order: from team building to decision-making processes and SOP (standard operating procedures) implementation.
T for tangible habits:
Quantifiable metrics of business success and value are: revenue, recurring revenue, profit, and cash flow. Make sure these parameters shine so you can command a premium price.
Doing these Four Habits of EXIT™ well can mean the difference between a mediocre exit and a 7-figure exit.
Related content: HOW TO INCREASE the value of my business before selling it?
Conclusion: Why increase the value of a company before selling it?
The value of your business is a simple measure of your success and growth potential. Increasing its value results in a larger payout when selling your business. These are all great reasons to increase the value of your business before selling it.