When I considered selling my manufacturing company, I wanted to know whether it was sellable and how it would be valued. The overarching value determinant of any business is its revenue trajectory.
But how do you know whether that revenue number is healthy? What other factors are in play when it comes to boosting the value of your business?
Here are 6 things you can do to improve your company’s valuation, starting today.
Step 1: Take a Two-Week Vacation (Really)
When you’re preparing your business for sale, your buyer wants to know whether you can exit cleanly. One of the good tests that you can take, today or in the next year, is to book yourself on a two-week vacation where you’re not answering email or taking phone calls.
Give yourself proof that your business can thrive for two weeks without you. And when you come back to work, identify all the things that broke without you and fix them.
Then, when you’re getting ready to sell your business, you know that it has survivability and even thriveability, without you. That’s a mark of value for your company.
Step 2: Win the Customer
Take some quiet time to get clear on which customers you really win at, relative to other companies. Why is your business different? Maybe it’s a niche. Maybe it’s a vertical. Maybe you own at geography, or a better sales cycle. Our customers are the top financial services companies in the country, for example. We win at customer satisfaction and loyalty: our customers’ average tenure is years, not months like the other guy.
Know what that value is, and be clear about it. Even if it’s a niche and it’s small, own your niche. Differentiate yourself from the other folks in your industry, and continue to build on it. Make this edge your customer process, too.
One company told me one of their niches is going against this old dinosaur company. “All we do is find customers that are serviced by company XYZ, and we send our sales rep into that, and we win market share. We win 90% of the deals.”
It sounds kind of bad, right? But that’s their niche. They know they can win there all day long, and that’s what they do. That’s an advantage that creates value for the company.
Step 3: Consistently Up and to the Right
Your business will also command premium value if you can illustrate revenue growth and profit growth, quarter after quarter, and year after year. Consistently move your trend lines up and to the right. It doesn’t have to be a ton. It doesn’t have to be steep, but you want to avoid having to explain to a potential buyer all the bumps and dips and jagged lines in your growth trajectory as much as possible.
Consistent growth over time builds the most value for your business.
Where I think a lot of folks miss an opportunity is looking at that curve when you introduced a new market or a new product—did you continue to grow afterwards? If you went into two markets, say, and you were successful, then a buyer can come in and say, “Well, you’ve proven that you have a way of going into market A and market B, so maybe, when I buy it, I can go into market C successfully.”
Build those proof points for a potential buyer. That creates value for your company.
Step 4: Project and Make Your Targets
This step is often overlooked by business owners. When a buyer does due diligence, they’ll often ask for your prior years’ plans or budgets. You want to be able to show that you do what you say you’re going to do. So if you said in 2015 that you were going to do 12 million in revenue in your budget, then achieving that target and executing against that plan illustrates reliability in your revenue and growth. That creates premium value. Are you able to accurately forecast and execute as an organization and do what you say you are going to do? That’s powerful.
We see too many business owners who say, “I don’t need a budget, it’s all in my head.” They don’t write it down. But the result is that they don’t have a proof point that they need.
When it comes time to sell, having budgets and plans that you’ve hit is a huge asset in the process. A buyer can say, “This company knows how to get stuff done.” That creates incremental value to the buyer, because they know that the organization is capable of planning, and they’re capable of executing against the plan.
Making your targets as a part of your organizational process is critical to your company’s valuation.
Step 5: Your Team Has “GWC”
GWC is a term I borrowed from the book Traction, which is centered around EOS meaning the Entrepreneurial Operating System. GWC stands for Gets it, Wants it, has the Capability to do it. This tool helps you prove to a buyer the engagement and strength of your employees.
How can you prove that your team, your core team, and your management team are strong and get what you’re trying to do as an organization? How can you demonstrably show that they want it? That’s loyalty, passion, engagement. And the last factor is the capability to do it, which is raw smarts.
In the years before you go into your sale process, build a process for evaluating your team and providing feedback. It needs to have rigor and be self-examining. It needs to demonstrate to potential buyers who is good, why they are good, and why they’re here.
Revenue and profit drive company value, as do key intangibles you can change.
Saying those things to a buyer without evidence won’t hold water. When the buyer sees the process, the rigor, the documentation, and the outcomes, that creates value. It’s intangible but hugely valuable in terms of raising the price for your company.
Step 6: Special Sauce
What is your company’s special sauce? Is it your culture? Do you have solid systems? Do you have a unique edge with your customers? Do you have an uncanny way of productizing your services? Or is it good old intellectual property, covered by patents?
This point gets into core competency. Your special sauce could be being really good at your supply chain, in terms of getting high-velocity things to different places on time like no one else.
A professional services company that I just sold had made a huge investment in an ERP system that helped inform them deeply about their customer. It enhanced their sales and marketing process. It helped them manage their team’s resources and was fully automated. It enabled them to be scalable without manual processes breaking down. That system was a huge special-sauce asset that wasn’t about revenue. It was an asset that could help the company grow for a long time without further investment. That gained them a huge amount of credibility and value in their sales process.
I’ll leave you with two points. One, the way to start increasing the sale value of your business is to start today. This is not stuff that can be done at the last minute, nor in the last 90 days. These are valuable steps that you need to begin years in advance. It’s little stuff. Keep an eye on it. Begin now with the end in mind.
Second, a lot of these things are intangible. They’re not your actual revenue or actual profit. These things validate and strengthen the credibility of your numbers, and of your organization’s ability to continue delivering that revenue and profit into the future in a way that enhances the value of your company.