The question is probably not “would you?” but “could you?”
Of course, the average SME owner can never achieve these crazy valuations. Instead, most lose out when it comes time to sell.
“Most business owners sell based on a traditional formula where the key factor is the profit. And in times like these profits are not that great for many businesses”, said Marc Johnstone, partner at Shirlaws Coaching.
“Instead business owners need to focus on the other leverage points in the business, which directly affect the value multiple the business is sold at. That’s how businesses within a span of just 18 months can become three times as valuable when sold,” continued Johnstone.
So, what can you, as a business owner, really do to change the value of your business?
For most businesses costs have already been slashed to the bone. And raising prices is likely a way to scare away customers, and quickly growing the customer base is not as easy as it sounds.
Instead businesses need to look at some of the key leverage areas in the business including:
1. Brand and marketing
From rebranding to product extensions, this area covers a lot, but it’s the areas where you often find the cheapest wins with the quickest payback time. It’s also very much the ‘first impression’ of the business. Without this properly sorted out you may not get past first base.
2. Systems and processes
Think about a potential future owner; how will he/she know how to operate the business the way you do? It’s impossible! The answer, of course, is having great systems and proper processes for what happens inside your business.
Capital and cashflow
Whether it’s a fresh loan from the bank or improved cash–flow, most business owners can do a lot with added cash in the bank. So, while having an extra $50K in the bank may seem like… $50K, in reality it’s worth a lot more once you leverage that capital. A new owner wants to expand fast, to recoup the invested capital, so having extra operational capital and cash on hand is important.
Think of the structure as the skeleton of the business. From company structure, ownership structure through reporting and organisational structures. Is the structure easy to operate? If it is that is a major value add for the incoming owner.
Here’s a couple of quick hints that will totally change your view on value:
There’s no successful exit without a successful entry
Most business owners are thinking too much about what they want. Remember the customer is always right, so find out what the potential buyer wants, even if you don’t want that buyer to show up until several years down the track. Some of this takes a while to prepare.
Emotion gets in the way
Think about the last time you made a really big sale in your business. Were you happy? Did you sing and dance, clap your hands? You probably worked hard to get it, but getting that big sale felt really good.
Now think about selling your business. What’s the feeling?
Most people feel sad. It’s like seeing your children grow up and then they leave home, never to return. Most owners have an emotional attachment to their business.
Clear out the emotions if you want to really make a big windfall on that biggest sale of your life.
Mike Boorn Plener is CEO and Executive Producer of Business Connector and the organiser of Exit Strategy Masters.
Exit Strategy Masters combines experts from Perspective Group, Shirlaws, Bluemount Capital, PDC Creative and others to give business owners a roadmap to massively improve the value of their business when it comes time to sell.