The Pillars of Valuation

valuationWhether you jump out of bed each morning ecstatic to run your own business, or you dread another workday helming the company you’ve grown from scratch, it’s inevitable: You’re eventually going to hand over control of your empire. When you do this is a matter of personal preference and professional convenience. How you do it is something that needs to be established now.

Every successful sale, to an external or internal buyer, starts with an accurate picture of how much a company is worth. But equally important is how your company continues to grow in value, what determines value and how you maintain maximum transferability to a new owner.

Build Value Now

Here are seven ways to build value and prep your company for a smooth, prosperous sale:

  • Know the life expectancy of your client base. There are many types of clients, from customers who have been with you from the beginning, to short-term clients who’ve just entered your fold. You might have young clients or older clients. How are you serving your “typical” clients? If you’re still using the same script for all your clients, regardless of background, it’s time to dig deep—and narrow—and learn how to serve them better. If you have older clients, build relationships with their families to keep the chain of loyalty going.
  • Maintain lean processes. Streamlining your processes, from maximizing customer service to purchasing modern software and technology, will bring significant value to your business. Potential buyers will appreciate the time, effort and money put into making your business lean and efficient, and essentially a turnkey investment.
  • Put the client’s interest ahead of your own. It seems like a quaint notion: The customer is always right. However, this philosophy should play a major role in how you build value for your company. In doing what is right—and fair—for clients, you may affect cash flow and profits in the short term but see significant benefits in the long run.
  • Keep a loyal crew. When many businesses change hands, employees can’t wait to jump ship. To them, it’s not just about the uncertainty of how they’ll be treated by their new employer, but whether they feel that they’re appreciated as theoretical owners in the company. When employees think like owners, they feel strongly invested in the company and look forward to serving their clients far beyond any company sale.
  • Never forget about growth. Any serious buyer is going to want to see a company with growing revenue and a growing customer base. By generating forward momentum, you’re automatically adding significant value to any company sale. This will be as attractive to an outside buyer as an inside one. If you’re stuck with flat (or declining) revenue, revisit what you’re doing and make changes.
  • Communicate with clients. Your staff knows that in the near future, you’re going to sell your business. What about your clients? Keeping great communication with your clients is essential to a successful sale. How will they react to your staff—or company—if they know you’ll no longer be in charge? Will they have concerns about a new buyer changing everything they like about your business? Address those questions early on.
  • Evaluate your metrics. Before any sale, dig deep into your numbers. Look at your profits. Look at your sales. Does your team have the mindset of a seller? According to CPA, consultant and author John Ezell, everything from cash flow to growth to service to staff will determine value to a buyer. Metrics reveal all.

Ideally, you’re able to teach your employees to think like sellers, as well as owners. Whether you’re courting someone from the outside or a group of employees to take over your business, always take a well-rounded approach that explores every angle of your business.

No comments yet.