How To Maximize The Value Of Your Business

If you’re thinking of selling your business, you probably want to consider the areas that might add the most value to it. Some ‘advisers’ will tell you to reduce costs, such as on your marketing spend, or how much you take in salary and dividends from the business, which in the short term will make the business look more profitable, but the truth is, as soon as a buyer looks a bit more in-depth to the business, they’ll uncover these areas, and they’ll just adjust their offer accordingly.  In most cases they’ll just walk away.  

The buying and selling process is built on mutual trust, so by falsely representing the business operations like this, it’ll just make any potential buyer wonder what else you’re trying to hide.

So we’ve done a list of 10 areas that you can develop, to increase the value of your business.

  1. Sell Sell Sell.  

If the business doesn’t make a sale, there is no business.  If your focus is taken away from the frontline of the business, instead focusing on trying to find a buyer for your business, then you need to put someone else in place to run that part of the business for you.  Now for this example, we’re talking just about sales, but the same goes for any area of the business.  

If you normally spend your time in a ‘manager’ role, you’ll have to replace yourself with a new ‘manager’, or else your business will just suffer until you do.  Remember, if you don’t have customers in the business, the business will be worthless anyway.  You ideally want to try and ramp up performance in all areas of the business.  This is part of the process toward removing yourself from the day-to-day operations.  One of the main reasons a business owner won't achieve a sale, is because ‘they are the business’ - in other words, without them, there is no business.

  1. Clearly understand what makes your business different.  

Understanding what makes you different in the market, is the first step to growing your customer base, and increasing your profitability.  Write down what makes you different, & then start communicating it to the market.  If you know what makes you different, you can also use this to attract any potential buyer.

  1. An upward trend in Sales & Profit.  

If you can show a consistent level of growth in the business, across both sales and profit margin across a five year period, it demonstrates to a buyer that its a safer bet.  

When talking about growth, many businesses  focus solely on sales, and that means that profit suffers.  You might grow by £1m in sales, but end up with less overall profit, than you had prior to the growth.  

Focusing on the right metrics to measure is the key.  Set targets that are broken down by quarters, months, and even weeks.  If you have a full time sales staff, you could even break these targets down by day.  If your previous target were say 10 sales a day, by increasing to just 11, you’ll grow by 10% without doing much additional work.  If you continue this trend in the following month or quarter, to say 12 sales per day, you’ll very quickly grow the business with consistent growth every month.  A side effect of doing this, will mean your sales staff will always be looking at ways to improve, ways to reduce the time it takes to make a sale.

  1. Forward Planning.  

We’ve written numerous articles on developing your vision for the business, but the main point to this exercise is long and short term planning.  

Start with your longer term vision, say 15 years into the future, then work it back to 5 years, 3 years, 1 year, Quarters, Months, & Weeks.  As well as planning, you’ll need to make sure you have the resources in place to reach each milestone.  There’s no point in having a goal to achieve 100x your sales figures, if you don’t have the staff or resource to achieve it.  

Without the resource in place, it’s just a dream.  It doesn’t matter if your plan is to sell the business within the next 12 months, you need to be driving toward a shared vision for the business that every member of staff clearly understands.  This way, when a buyer takes over, the business continues to operate, and although they may want to tweak the plan slightly, it isn’t a case of major planning and starting from scratch.  Remember, a buyer isn’t interested in running the business, they’re an investor, and a shareholder in your business.  

A shareholders role is to ask its management team to develop a plan, that achieves certain criteria based around share value and returns.  A shareholder is less interested in how the business gets there, as long as it gets there.  Based on their experience, they may help and give advice on other routes to help the management team get there faster, but they aren’t really there to consider the HOW.  So you need that plan operating before a buyer enters the arena.  

  1. Marketing Plan.  

For many small businesses, marketing is done via scatter-gun approach.  Adverts placed randomly. Different forms of marketing with no real awareness of the results.  Look at your previous Marketing activity, and analyse what results you achieved from it.  

Set a new marketing plan, according to your new 3, 5, 15 year plan for the business, and strictly measure each activity, and the results it achieves.  If one activity is not performing, drop it and try something else.  Understand what works best, and drop the rest.  By the end of this process, you should know predictably how much it costs to secure a new customer through a particular medium.  As we’ve already mentioned, don’t just reduce your marketing budget to increase perceived profits.  It can be reduced, but only after you can achieve the same or better results.  

Marketing is an investment, not a cost.  If you know that for every £1 you invest in marketing, it generates £200 in sales, you can quite predictably allocate resources more effectively throughout the year, to reach whatever target you want.  Look at how you can expand your customer offering.  Look at approaching new markets for your existing offering.  There are hundreds of ways to increase your marketing, and you should test and try out at least 20, before understanding which work best.  Even then, you’ll have a benchmark to work to, and you should continue to try new ways, whilst maintaining those stable & proven methods.  As you discover a better more efficient route, bring it into the system.  

There are 5 ways to improve your profit:

  1. Increase the Number of Leads

  2. Improve the conversion rate

  3. Increase the number of transactions

  4. Increase the average transaction value

  5. Improve efficiency in all of these areas to reduce cost.

6.  Customer Review.  

Understand how profitable each contract and customer is to the business.  Performing an ongoing analysis will identify the customers that are dragging your profits down.  Get rid of them, and your profits will shoot up.  Imagine having 6 customers with 80% profit, and 4 customers with 10% profit.  It would give your business an average 52% profit.  Get rid of those bad performers, and spend your time working for more of those profitable customers instead.

Having a diversified order book is also a key reason that a business will sell.  If you have any customer that makes up more than 10% of your total sales or gross profit, this presents a risk to any buyer.  If anything happens to that customer, your business will be impacted too.  Spread that risk, by diversifying your order book.  If the risk level goes up, then the value of your business goes down.  Likewise, if its possible, try to diversify by sector too.  By having your order book diversified across say 3 - 5 sectors, this can reduce trend or economic risk.  There are some sectors that virtually die in a recession, and some that thrive.  The key is to try and balance between the two.  

Also try to have long term rolling contracts with recurring income such as maintenance contracts or working on a retainer basis.  A buyer will always be more attracted to a business with recurring revenue and long term contracts.

7. Pricing Reviews.
When was the last time you made an increase in prices?  Most businesses are worried that by increasing prices, a customer will start shopping elsewhere.  But customers rarely buy on price.  In fact, if you’ve been working with a customer for a period of time already, and there’s an established relationship in place, the feeling of change is too uncomfortable for them to imagine.  They buy based on convenience & certainty - They know what they’re getting.  

To try and find a new supplier, they’ll have to start from scratch establishing that trust with a new supplier.  With you, they know exactly what they’re getting, how they’re getting it, and when they’re getting it.  They aren’t buying on price, they’re buying the relationship, and the peace of mind.  Assuming the business is already profitable, it’s time to increase your prices.

If you win new customers based on some type of incentive or discount offer, increase prices to reflect this first.  If you’re offering credit to customers, increase prices to cover that benefit - You’re not a bank, so stop operating your business like one.  With this approach, you can always offer a discount to those customers wishing to pay early, without credit.  This incentivizes customers to pay on time, and improves your cash flow.  

8.  Management Structure.
One of the key reasons a business owner won't achieve a sale, is because it has no management team in place.  The business owner is effectively THE BUSINESS.  By putting in place people to manage the business it means you can start to act like a shareholder rather than a business operator.  

Other ways to reduce reliance on the business owner, is to systemize and automate the business.  This should also free up some of your staff time too, which will leave spare capacity to manage the business.  Most small business owners will typically say that they don’t have the money to employ a full time manager in the business.  One way around this, is to make employees responsible for their area of work.  Rather than basing their roles around completing tasks, we base their roles around achieving certain objectives, all in line with the long term business plan.  One of these objectives, could include taking responsibility for a particular function or area of the business.  This removes the need for a ‘manager of tasks’, instead all you need to do is review performance according to the pre-agreed objectives set.

Other ways to build your management team, is to employ part time consultants, or Non executive Directors, who can also help with guiding the business in the right direction based on their experiences.  

9.  The Right People.  
If you don’t have the right people slotting into the right place, life can feel like a struggle.  This is an exact science.  People perform best based on their natural personality or energy level.  Consider a natural salesman being put into the role of a number cruncher, or someone that has to write procedures all day.  They’ll be able to do it, but it’ll take them longer than expected, and they’ll probably find the process stressful or boring.  

This might seem obvious, but in a business of 10 employees, at least half will be performing roles that don’t match their natural personality type and strengths.  There’s a reason that large corporations use personality profiling during the recruitment process.  Use it in your own business, and you’ll notice drastic performance increases, as well as motivation & happiness from your staff.

10.  Updated Records.  
Always having the most up to date information in a business means you can make decisions quickly and easily.  For many businesses, it’s a struggle just to do their quarterly tax returns.  If your business doesn’t have up to date records, including a live position of where your business is at, it carries an increased risk to any potential buyer.  

The ideal scenario is that you can access real time, live data, remotely on your smartphone, from a beach 6,000 miles away, getting accurate up to date information about any area of the business.  Whether that’s through management accounts, sales pipeline numbers, or the status of contracts being delivered.  This falls in line with the systemization process, and you’ll typically want third party certified systems, such as ISO 9000, which goes much deeper, but follows a proven framework and structure to manage your business effectively.  

We hope you’ve received some value from this article, and some information that you can use to move forward toward your vision.

If you’re confident that selling your business is the way to go, or perhaps you’re undecided, it’s important to consider the significant amount of effort and resource you’ll need to make it happen.  It’s a full time job. - The time investment alone is enough to put anyone off.  So imagine for just a minute, that you didn’t need to do all of this work.  What if this could be done over the next 3 - 5 years (by someone else).  Everything we’ve listed in this article, is what you’d need to do, if you were selling through a business broker, or direct to a buyer.

Unlike other private equity firms, our focus is on growing businesses at the smaller end of the market.  We’ve worked in, and grown our own businesses in the exact same fields you work today.  We’ve spent years coaching and supporting small businesses just like yours, developing their teams, and helping them to grow, but now, we’d like to help you.  

We have a solution for business owners that need to sell their business immediately, or for those who want to stick around for a few years.

If you’re considering the options to grow or sell over the next five years, read more about how we're helping others just like you. Click here to read about our unique approach to helping you get what you want with the YokeFormula™ for your business.

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