Considering the amount of time, energy and money you have poured into your enterprise, it is worth taking that few extra steps to get a better return on your investment. Why not take the advice of business brokers, CEOs and acquisition specialists who offer practical advice on getting the best price for your business. This may mean delaying the sale of your company, but planning ahead will also yield a decent profit.
These five ips are certainly not the only ones, but following them could put you on the path to financial freedom.
Demonstrate recurring revenue: Many entrepreneurs look at the bottom line revenue reported every year on a tax return, but this is not the only revenue that matters to a buyer. They want to see the regularity, or recurring revenue, from a loyal base of customers.
When customers come back again and again, it gives buyers more confidence in the future health of the business. Many entrepreneurs try to foster this type of loyalty by offering a "loss leader;" an affordably priced product or service that is consumable and needs to be purchased again and again. For example, if your company sells printers and business machines you might want to become known as the place to recycle ink cartridges in exchange for inexpensive ink.
Show an upward trend in revenue growth: Why is it that buyers want to see your top line revenue growth? First of all, it helps them get a glimpse of the future worth of the business. It is easy to juice the profitability of your products by cutting costs, so a buyer might not be so impressed by growing profit margins, but they will want to know that there is increasing demand for the product. Revenue growth over time is evidence that your business is creating that demand and consistently delivering quality products and services.
Cash flow is healthy: One way to look at cash flow is this: when a company keeps more money than it has to spend to stay in business, it appears more valuable to a potential buyer. The more cash flow your company generates, the less capital the buyer will have to infuse into its day-to-day operations. When a buyer can keep more of their cash, they see the business as a worthwhile investment.
Differentiation is key: Is your company building a better mousetrap? How is it different than the competition? Buyers want to see that buying your business will give them an edge within the industry, but that will only occur when there is a noticeable difference in your products or services. Differentiation allows a buyer to imagine the profit potential available to them if they buy your business.
Use the right multipliers: Unlike home values, the value of a business is dependent on many factors. These include the current health of your industry, the type of equipment you own, and your competitive position in the market. The multipliers used for your company might be very different from those of a similar-sized business in a different industry. Try to avoid using the standard multipliers for business valuation unless they work in your favor, or take a long-term approach and start driving up the value.
Clearly, the most important way to add value to your business is to give the buyer more confidence. Whether it is differentiated products, better cash flow or other value enhancing benefits, buyers are willing to pay more for a business with profitable potential. The best way to find a qualified buyer for your business is to list in an online business directory.
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