Why did you start your business venture in the first place? This answer doesn’t need to be philosophical; it could be money, a comfortable lifestyle, working with a talented group of people, or enjoying the fruits of your labor. But what drives you and your business? Do you want to build a gold asset and sell it off later? If that’s the case, what’s your exit strategy? Is your business worthy in the eyes of an investor? Is it truly valuable, and if not, how can you make it more desirable compared to your competition? What factors define a company’s value and affect its worth? Don’t worry, you don’t need a PhD for this; all you need to do is focus on the key factors that characterize your business’s valuation.
If you are planning an exit or selling your company via a merger, consult a finance expert or a professional accountant in Bellevue, WA, who can help you assess your assets, revenue, and liabilities.
How to Make a Business Valuable:
The following are the key aspects that make a business valuable and help evaluate its true worth:
- Stable Second-tier Management: Is your business entirely reliant on you? Can you go on vacation without worrying about client phone calls, emails, and panicked staff? A company with a strong, skilled management team (who stays post-sale) and understands the work to its core is much more valuable than a self-reliant enterprise. This is one of the most paramount factors that makes a business more valuable. If a buyer invests in a sole proprietorship model with no managers, it puts them in a position where they have to invest even more. Investors and buyers don’t want a business where the owner is the business.
- Recurring Revenue Systems: Recurring revenue streams are the holy grail for most businesses. Repeat contracts, services, and subscriptions are attractive and valuable. Though only a few organizations incorporate this model into their systems, they don’t realize that the more this type of income they generate, the more valuable their business will become. Netflix, Microsoft, and Amazon Prime are prime examples of these models. You can also learn by observing how IT and cloud storage companies operate.
- Efficient & Accurate Accounting Systems: A well-organized business with reliable, tidy, and accurate accounting systems will pay handsome dividends when you sell your business. Think about it: while pitching to investors, you are on thin ice if you don’t have management accounts, financial statements, and other relevant documents because you never needed them. You have created chaos in your finances, which cannot be managed if you plan to merge or sell your organization. Your finances should be in order, compliant, and efficient, making your business worthy of market value.
- Loyal, Long-Term Customers: Who doesn’t want happy, satisfied, and loyal customers? Your business’s ability to retain buyers and demonstrate when they will return to repurchase or engage in your services again makes your organization valuable. Integrate a tracking system to identify customer buying and satisfaction patterns; this way, you can improve your client relationships and methodologies, benefiting when it’s time to cash in.
- Marketing and Good Reputation: A business with a good reputation, moral values, and exemplary standing in its industry will attract more attention. That doesn’t imply engaging in false marketing; remember, marketing is about informing your customers about what your business offers. A downfall or negative image of an organization can nullify investor interest and decrease its market value. As articulated by ex-Uber investor Warren Buffet, “It takes 20 years to build a reputation but less than a minute to destroy it,” sums it up.
