How to increase the value of your business
If you‘re planning to sell your business in the future, start taking action as soon as possible. You’ll need time to implement the changes that will improve the value of your business and help you get the price you want.
Identify the actions you need to take now, so that in one, five or 10 years’ time the business is worth much more than its current value. Here are 10 value-adding steps across two areas that you can consider well in advance of putting your business on the market.
Expand your market
Ensure your market is growing or has the potential to grow. If you’re in a declining industry, you’ll either need to reverse this or look to expand into a growing industry. Diversifying to gain a new revenue stream and increase cash flow will help raise the value of your business in the eyes of a buyer. This is important because a cash flow analysis will be one of the first things a potential buyer will be interested in.
Change your market position
You may be able to grow by changing your market positioning, for example:
- A motel might be able to grow by becoming more upmarket and gradually improving its facilities, standards and therefore prices.
- A specialist engineering business could grow by appealing to a broader market and developing cheaper, mass-market versions of its best products under a different brand name.
Conduct regular market research
Showing that you regularly research possible change as part of your strategy is another important way of protecting value. It shows buyers that your business is not standing still and it’s adapting to changes.
Setting up processes to monitor the business climate and getting quality customer feedback on their changing needs will help you keep track of your market. Planning ahead to anticipate challenges will help you create a strong, consistent track record.
Develop your brand
A buyer will see significant value in an established and respected brand. No matter how small, any business has the potential to differentiate itself from its competitors and become the market leader in a defined niche. To achieve this, you need a brand that captures the essence of your business.
A brand builds your market credibility over time and its reputation helps to sustain revenues as you grow.
What do your products or services offer that sets them apart from those of your competitors? This is your unique selling proposition and is the basis of successful branding. Conduct a brand review and take any necessary steps to enhance or re-invent your branding.
Form strategic alliances
Strategic alliances can be an important source of growth, particularly if you don’t have the skills and resources to exploit your opportunities. For example:
- Forming an alliance with a complementary business can help you tender for work that your business couldn’t normally deliver on its own.
- Working with a major distributor may be more effective than developing your own sales channels.
These actions could increase the value of your business when it comes time to sell.
Show growth potential
A potential buyer will be more interested if you can demonstrate that your business has potential to grow, so aim to create a business that can be scaled up. For example, if you develop good business systems and operating manuals, you can show buyers that the business has the potential to:
- become a franchise
- expand into other geographical areas
- acquire smaller competitors.
Maintain physical assets
Maintaining assets helps to generate value. Failing to do so can see your assets decay beyond repair. Tangible assets such as machinery, equipment and property are relatively easy to register and protect through insurance and maintenance schedules.
If possible, try to own the core physical assets that you rely on for success. Owning your premises can provide both security and the potential for capital growth. Be sure to seek advice from your Medfin finance specialist regarding asset finance, business loans and equipment leasing.
Protect intangible assets
It’s important to recognise and protect all the intangible assets that add value to your business. Once you start listing them you may discover there are more of these assets than you realise.
Assets such as intellectual property (IP) can add both security and value. Review the IP Australia website to see what could be patented, copyrighted, design protected or trademarked.
Remember the less obvious assets too. For example, in a ‘knowledge’ business whose value largely reflects the skills of its employees, the business risks losing value if the employees leave or take intangible business assets with them, such as a copy of the customer database. Consider these steps:
- Protect your customer database and other key records by creating backup copies and keeping them off-site or in a fire safe. Your customer database is a significant source of value to a buyer, especially if you can show that you gain repeat business through it.
- Use passwords to limit employee access to sensitive or confidential information.
- Periodically check that you can successfully restore copied data.
Protect your property
Set up systems to minimise the risk of employees ‘owning’ some of the value in your business. For example, sales people may feel they own certain customer relationships. Include clauses in employment contracts to clarify ownership of any IP developed in the business and to prevent former staff from competing with you.
Retain key staff
Dedicated and experienced staff can be a key asset in the eyes of a buyer. Key staff who have helped you create a valuable business are themselves an important part of that value.
To retain them, make sure you provide opportunities for career progression and use incentives to align pay with the value they create. Make your business an attractive place to work. Good working conditions and competitive wages will help to retain their skills.
Strengthen your team through selective recruitment and training. Look for staff who will create value for your business, and managers with transferable skills who can help you manage growth and achieve the best standards.
Clearly communicating your vision and strategy to staff will also help to motivate staff and gain their buy-in to value-adding goals.
Start planning to strengthen these 10 areas in your business now. Take note of the steps that also help to ‘distance’ you from your business. Buyers will see less value in a business too reliant on an owner. If this applies to your business, take steps to show that your business can stand alone.
- Meet with staff to plan medium and long-term ways to add more value to your business.
- Meet twice yearly with staff and your advisers to discuss possible political, economic, technical and social changes.
- Lock in intellectual property – review the
IP Australia websiteto identify what you can protect.
- Create a realistic timeline of value-adding actions that you want to implement, and make a start.
- Talk to your Medfin finance specialist about asset finance, business loans and equipment leasing.
Please note that this is a guide only and should neither replace competent advice, nor be taken, or relied upon as financial or professional advice. Seek professional advice before making any decision that could affect your business.