Now we’ve got your attention, let’s get down the business of making your business more valuable! First things first: the value of your business is partly determined by your industry. For example, a cloud-based software company is generally worth a lot more than a printing company these days – one’s potential for growth far outweighs the other. However, when you analyse businesses in the same industry, you will still see major variations in valuation. These are the 7 key areas that will make your company more valuable than its industry peers.
1. Recurring Revenue
The more sales you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring turnover it will make your company much more valuable than those of your competitors.
2. Sales Predictability
Businesses that have mastered a way to win customers with a documented sales funnel that produces a predictable set of conversion rates are much more valuable. An acquirer will be attracted to your proven customer-acquiring formula rather than an industry peer who doesn’t have a clue where their next customer will come from.
3. Niche Positioning
Buyers purchase what they cannot easily replicate on their own, which means that companies with a unique product or service which is difficult for a competitor to ‘knock off’ are more valuable than a company that sells the same commodity as everyone else in their industry.
Acquirers looking to fuel their top line turnover growth through acquisition will pay a premium for your business if it is growing much faster than your industry average.
5. Business with a 2IC
A business with a general manager or a second-in-command who has agreed to stay on post sale is more valuable than businesses where all the power and knowledge are in the hands of the owner.
6. Customer Diversity
Buyers pay a premium for companies that are not over reliant on a major customer. Ensure no customer amounts to more than 10 percent of your turnover and your company will be more valuable than an industry peer with just a few big customer
7. Happy Customers
Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction. A well-recognised tool for demonstrating your customer satisfaction is the Net Promoter Score.