4 Ways to Increase Your Business Valuation

Building a business and selling it for a profit is the dream of many entrepreneurs. Unfortunately, most business owners do not understand what makes a business valuable to potential buyers, and therefore do not know how to increase the valuation of their company. In fact, we meet many business owners who spent many years creating a business that is, for better or for worse, unsalable. In this article, you will discover 4 ways to increase the value of your company:

1. Know the current value of your company. If you want to know how to get to your destination, you need to know where you are now. If your goal is to sell your company for $10 million, how much is your business worth right now? Most business owners have no idea how much their business is worth. One of the best ways to increase your business valuation is to find out how much your business is worth now, and why. What are the factors that contributed to your current business valuation? What are the factors preventing your current business value from being higher? Knowing the strengths and weaknesses of your company’s valuation figure today is essential to developing a plan to increase it.

2. Maintain accurate books. Recently, we met with a small business owner who wanted us to value his business. He would like to sell his business for $150,000, and we asked to see his company financials. Unfortunately, he did not maintain accurate records of his income and expenses, and could not produce much documentation to back up the net income figure he verbally claimed. Without accurate books, the risks perceived by potential business buyers increase, which means people are not willing to pay much for his business, and lenders will be unlikely to fund the business purchase. In other words, the business value of this company was hurt greatly because the owner did not maintain accurate financial statements.

3. Sell the company when revenues are going up. Many business owners only think about selling their business when the revenues have been declining over the last few years. This is understandable because why would you sell the company if revenues and profits keep growing? For better or worse, your business valuation is the highest when revenues have been growing over the last few years. Ultimately, the value of your business is determined by how much buyers are willing to pay, and how much lenders are willing to fund. When your revenues are growing, people feel optimistic about your company’s future and are willing to pay more. You can still sell your business when revenues are down, but you may have to accept a lower business valuation.

4. Prove your projections. We often come across business owners who say something like this: “My revenues are $2 million a year right now, but I expect to do $4 million in revenues next year.” Then, the business owner would like us to value the company based on $4 million in revenues instead of $2 million. We can certainly take this into consideration if the business has a good reason for strong revenue growth, but buyers generally place a much heavier emphasis on historical financials than projected financials. After all, projected financials are not proven and who knows if the company will really achieve $4 million in revenues next year? If the business owner is confident that the company will in fact reach $4 million in revenues next year, we often advise the business owner to wait until next year to sell the company. While we can value the business now, the valuation will primarily reflect a $2 million company. When the projections become reality, the business valuation will be much higher since it reflects a $4 million company.

Advantage Business Valuations provides business valuation services for small to mid-sized business owners in the United States. Founded by Aaron Muller who has valued thousands of companies as a business broker, Advantage Business Valuations helps small to mid-sized business owners determine the value of their business with ease and confidence. To discover the value of your business, visit www.AdvantageBusinessValuations.com.

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