Selling a business is often the most lucrative and efficient exit strategy for an entrepreneur looking for new opportunities and it can be an incredible way to see a return on an investment of dollars, years, and unquantifiable effort to establish a business in which you intend to maintain a role. But when business owners seek out a valuation of a company, regardless if it be done using an income, asset-based, or market approach, they often find that the business appraisal is somewhat less than expected.
A corporate valuation is a metric of the health and expected longevity of your company at a given time. This means something very important: the value of the business is not simply in the numbers, it’s in the eyes of the beholder. As such, getting a business appraisal in advance of any corporate merger or acquisition can help a savvy business owner to increase the apparent value of the firm in advance of corporate action.
A Buyer’s Perspective
The first step in boosting any business valuation is to tackle the track record. A perspective buyer wants proof positive that a business if profitable. Documenting a history of success will make the perceived value of the company higher, even though past results are not indicators of future success. Multi-year track records offer a level of comfort to a buyer, and more importantly, can drive up the valuation of a company if one uses the earning multiplier valuation method.
Future Earnings & Growth Markets
But again, the knowledgeable investor will only put so much faith in a company’s track record. A buyer will want to be strategically positioned to capitalize on the future earnings of your business and will expect those levels to increase with time and nurturing. This makes it important to quantify a firm's competitive advantages. Identifying what is unique about a company and showing how that gives an edge over competition will facilitate a sale at full value.
Furthermore, the possibility of growth in your sector will often times be enough to drive up a business appraisal. To that end, seek out multiple growth markets within your sector that will foster high levels of future earnings.
Founding a successful business hinges on an owner’s ability to innovate efficient methods of accomplishing tasks; but what increases the value of that business over the competition are patents on those methods and the technology that makes them possible. Many buyers will not even look at a business if there is not some kind or proprietary asset, intellectual or otherwise. In short, the word proprietary is a siren’s song for buyers so look for ways to have it included in your business valuation.
The phrase “hot mess” is one often associated with a corporate merger. This is because a large share of M&A activity involves a successful, organized company taking over a firm that is on its back foot. A small business owner looking to sell cannot afford such characterization. Organization of financial records, business policies and best practices, and regulatory compliance go a long way with buyers. An organized firm is easier to fold into current operations and buyers will be far more likely to pay full value when things are tidy.
Personnel and Personalities
Business is about people. This is a sentiment shared by many of the great business owners of the last century. Rockefeller, Branson, Bezos, they will all tell you that it comes down to people. A central component to boosting business valuations is presenting the strength of the human resources of the company. To increase that value, recruit high level talent. This will signal to buyers that they can expect the strength they see in potential earnings and organizational structure to continue under their ownership.