Business Valuation Blog | Understanding Buying / Selling a Company

Boosting the Valuation of your Company

Posted by Business Valuation Specialists LLC on Sep 21, 2015 9:30:00 AM

You never want to get too comfortable when you own a business because what is working today may not work tomorrow. Companies that are performing poorly have a lot of room for improvement. Companies that are doing well can do better. To get a true picture of how well or how poorly your company is performing, you should get a valuation of your company.

Business appraisals are done for a variety of reasons. They are often done as a precursor to a sale. They are done to value estates, for court proceedings, and to determine how assets will be distributed in a divorce. Another reason why you might want to have a business appraisal is to identify weaknesses in your business that are keeping you from getting a higher business valuation.

If you want your next business appraisal to be higher than your last business appraisal, you may need to make some changes. Be smarter, work harder, and try some of the following suggestions that can increase the valuation of a company.

Effective Use of Assets

You can increase the value of your business by making smarter decisions on how you spend your capital or utilize your physical assets. Business owners need to decide how many employees to hire and how much to pay them. They have to decide which vendors to use and when to upgrade the company's computers. Is it better to purchase a truck to make deliveries or to pay for a third-party carrier to ship your product?  Better have extra capacity that isn't being used or sell off excess machines in an equipment auction to generate extra cash.

A business that chooses to automate may have a large capital expenditure, but by investing in new machinery and equipment, the business could reduce its operating costs. If you can get a machine that does the work of ten people, you could reduce your workforce. Machines don't demand a $15 minimum wage and you don't have to provide them with expensive health insurance.

The smart allocation of assets can lead to greater profits and greater profits can lead to higher business valuations.

Increasing Productivity

Productivity is a measure of efficiency. When you are able to generate the same output at a lower cost, the cost savings go right to the bottom line. Productivity can be increased in a number of different ways.

  • By employing a higher-skilled and better trained workforce
  • By simplifying a process to complete a task
  • By investing in modern machinery and equipment
  • By cutting waste and recycling materials

Expanding your Product Line

You want to expand your customer base to increase sales. One way to do that is to expand the number of products you offer. For a long-time, Coca-Cola only sold one product. Today, as people are becoming more health conscious, the Atlanta-based beverage company sells more than 500 brands.

Forming Partnerships

Strategic partnerships can lead to lower costs, additional business and more rapid growth. A hotel could partner with a restaurant to offer home-cooked meals and save on the cost of providing room service.  Everybody likes Starbucks coffee, right? Well, Starbucks has expanded its distribution channels and grown over the years by putting coffee shops in bookstores, providing the coffee for airlines, and selling its coffee in grocery stores. Lower costs, more sales, and faster growth, all add up to higher business appraisals.

Focusing on the Most Profitable Areas of Business

Owners sometimes make the mistake of trying to be all-things to all-people and end up diluting their profit margins. Improve your company's bottom line by getting rid of low-profit-margin items and filling your store with high-profit-margin items. The only trick here is to make sure that you have a strong demand for the high-profit-margin items you sell.

Topics: valuation