How to Increase the Value of Your Business
There are many reasons to increase the value of your business. But today, let’s talk about the how. Learning how to increase the value of your business is essential after buying a business and before selling a business. There are several ways to go about this but here we discuss a few of them. Knowing the value of your business and how to increase it is important for every business owner.
A great way to understand the value of your business is to obtain a business valuation. A business valuation looks at financial statements, projections, historical data, and industry trends to better understand the value of your business. A business valuation can identify any need for improvements, risks, and key value drivers that are lacking, and more. Each of these will help you better understand how to increase the value of your business. To get started, schedule a free consultation with Peak Business Valuation, business appraiser. We look forward to answering your questions and helping you maximize the value of your business.
1. Decrease Risks
First, the most generic answer on how to increase the value of your business is to decrease your company’s risks. A risky company will have a hard time selling because nobody wants to take on a gamble. These risks drastically drive down the value of your business. The best way to understand your company’s risks is to analyze your business model and company processes. Target the biggest risks and start there. This may take time to decrease risk as it will involve a lot of effort and diligence. There will always be some form of risk in a business but determining the “safe” and “dangerous” risks and separating them is the first step. The dangerous risks are what deter a buyer. Improving these risks is one of the best ways to increase the value of your business. A business appraisal will identify these risks during the valuation process.
One of the largest risks for most small businesses is owner dependence. The more dependent the business is on the owner the riskier it is to buy and thereby less sellable. This risk decreases the value of the business. There are many ways to decrease owner dependence including the following ideas. For additional ways, see Reducing Owner Dependence.
2. Build Recurring Revenue Streams
Second, as you get more familiar with the business world, you will come to find just how important recurring revenue is. It is one of the biggest ways to increase the value of your business. Creating streams of recurring revenue will push your business to be consistent, less risky, and more profitable. So how do you get these streams? Cultivate strong relationships with your customers. Be in the people business. A business that has positive interactions with its customers will establish great business connections. This is where recurring revenue comes from. Gaining recurring revenue takes time and patience. If you think it will happen overnight, think again. For ideas on how to create recurring revenue, see Growing Your Business Through Recurring Revenue.
When doing a business valuation, an appraiser will assess all the revenue streams including recurring revenue. The more your business has, the higher the value. A great way to understand your company’s value and how to increase the value of your company is through a business valuation. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser.
3. Diversify Your Customer/Supplier Base
Third, it can be a dangerous game to receive most of your sales or product from one to two clients. While they may be big sales, your company cannot rely on select few outsiders to sustain your business. What happens if their company goes out of business, or chooses another provider of the product or service? Where does that leave your business? This is exactly why you need to diversify your customer base and supplier base. Build your clientele to be plentiful and profitable. There is nothing wrong with having major clients, but there needs to be other sources of revenue coming in.
Marketing can help you obtain this diverse customer base. You may consider hiring someone to help in this department. This will be a process. It will take time, money, and diligence to work. However, your business will become more valuable as you increase your customer base and diversify your suppliers.
4. Streamline Systems and Processes
Last, and most importantly, systematize. Get organized! Organize your business plan, streamline your processes, declutter, and create a system. A buyer wants a business that is organized and well kept. This is the curb appeal a buyer wants. Organization decreases your chances of missing a process, forgetting about a client, or losing important information. It eliminates the chances of silly mistakes. If you are overwhelmed about how to increase the value of your business, start here. This is the quickest way to improve the value of your business and encourage buyers to consider your business. In addition, having systems and processes in place makes your business more easily transferable.
In conclusion, whether buying, selling, or maximizing your business, value is important. The value of a business shows what it is capable of and how well the business is obtaining that. Understanding the “why” is easy, but knowing the “how” can be difficult. We are here to help.
At Peak Business Valuation, business appraiser, we help business owners understand the value of their business. A business valuation is a great way to have an outside perspective on how to increase the value of your business. Reach out to schedule your free consultation or to receive a business valuation.
Schedule Your Free Consultation Today!