Your industry is a significant factor in determining the value of your business. Cloud-based software companies, for example, are often worth more than traditional printing companies. When firms from the same industry are evaluated, there are significant differences in valuation. These business owners are urged to build value right away so that they can get better offers after they retire. These are ten things that will make your business more valuable than your industry peers.
1. Recurring Revenue
Your business will be more valuable to future buyers if you have more revenue from subscriptions or automatically recurring contracts. You should be able to find a form of recurring revenue, even if subscriptions may not be the norm in your industry.
2. Something Different
Buyers will buy products and services that are difficult to replicate. This means that companies that have a unique product or service, rather than one that can be copied by a competitor, are more valuable than those that sell the same commodity as everyone else.
3. Growth
If your industry is growing faster than the average, acquirers will pay more for your business to increase its top-line revenue.
4. Cache
Old companies may try to acquire sex appeal by buying a young company in their field. You will be the “darling of your industry trade media” and receive a premium offer.
5. Location
You will attract buyers interested in your location and your business if you have a unique place.
6. Diversity
Companies that can naturally protect against the loss of one customer will attract more buyers. Your company will be worth more than a peer in the industry with fewer customers than you.
7. Predictability
Your secret formula for acquiring customers will be more valuable than any industry peer who doesn’t know where their next customer is coming from if you have mastered a method to win them over and documented it with predictable conversion rates.
8. Clean Books
Audited statements are more trusted and thus more valuable for companies that invest in them. Even if audited financial statements are not joint in your industry, you may still want to have your books professionally reviewed each year.
9. A “2iC”
Businesses with a second in command who agrees to remain on after the sale are more valuable than those that have all the power and knowledge.
10. Happy customers
Your business will be more valuable than any industry competitor that can objectively prove that customers are satisfied and plan to buy again in the future.
Your industry defines the price range within which your business will sell. But, it is not about what you do, but how you do it. These are eight value drivers to consider:
(a) Financial Performance: Your record of producing revenue or profit, combined with the professionalism and accuracy of your record-keeping.
(b) Growth Potential: How likely you are to grow your business in the future.
(c) The Switzerland Framework: How dependent is your business on one customer, employee, or supplier?
(d) The Value Teeter-Totter – Whether your business has a cash suck or a cash pump;
(e) The Hierarchy of Recurring Revenue: This is the amount and quality of annuity-based, automatic revenue that you receive each month.
(f) The Monopoly Control – How different your business is from other businesses in your industry
(g) Customer satisfaction: Your customers are more likely to repurchase from you and refer others;
(h) Hub & Spoke – How your business would do if you are unexpectedly unable or unwilling to work for a period exceeding three months.
These value drivers will help your business build substantial value over time. With the right tools, resources, and support, you might be able to receive offers up to 70% higher than those in your industry. You can expect to build a more valuable and profitable business if you get started sooner.
