The Hidden Factors That Can Boost (or Tank) Your Business Valuation
Business valuation is important to boost and maintain, where possible. Whether you intend to sell in the future or you’re looking to sell in the next year or so, knowing your business valuation ahead of time can help to make the necessary changes in advance to help boost those potential profits.
In this helpful guide, you’ll understand the hidden factors that contribute to boosting your business valuation.
Why recurring revenue and systems matter more than size
While size might seem important to big businesses, it’s more about the recurring revenue and robust operating systems that are more important for companies that are looking to stay successful.
There are many advantages to recurring revenue and efficient systems that are worth touching upon. This will help when you’re exploring how to price a business for sale.
Recurring revenue in the form of a predictable cash flow is helpful. It’s a stable income stream that allows for more accurate revenue forecasting, strategic investment, and budgeting.
There’s a higher customer lifetime value that comes with boosted revenue, especially when you’re improving the loyalty of the customers by providing consistency in service and products.
Investors will also favor the businesses that have predictable revenue streams, seeing them as less risky and commanding higher valuations as a result. There’s a greater resilience and operational efficiency with businesses that have invested the time and resources necessary to improve the company’s day-to-day operations.
Good systems will provide reliable data and the data required to help scale the business up, therefore increasing its value.
The overlooked intangibles that buyers pay extra for
It’s good to know what intangibles buyers are willing to pay that extra bit of money for when purchasing a business. These non-physical assets will help to drive a company’s competitive advantage and future earnings. Thus making them crucial to a company’s true value. These key overlooked intangibles include:
Brand equity and reputation
A strong brand name and reputation a major driver of customer trust and repeat business. Brand building is a key investment, especially in modern business models.
Customer relationships and loyalty
As buyers pay a premium for a business with a stable and loyal customer base, it’s worth knowing the level of loyalty your customers have to your business.
Operational knowledge and processes
The unique systems, experience, and knowledge of the current management and employees are essential for smooth operations. This is a highly valued factor for buyers looking to make a purchase.
Intellectual property
From patents to copyrights and trademarks, it provides a unique and competitive advantage. In today’s economy, valuable technology can be a valuable intangible asset.
How to prepare your financials before talking to buyers
In order to prepare your finances for a buyer, it’s important to organize and clean up the business. Key documents like balance sheets, cash flow statements, and income statements for the last five years.
It’s good to compile all the detailed tax returns and asset registers. Being proactive and transparent with your financial documentation will help increase buyer confidence.