How to Increase the Value of Your Business and Improve Salability
There are several ways to increase the value of your business. While there are many factors that influence the value of a business – both internal and external – the most important factor that is within your power to change is how much the business is making.
While revenue is important, net profit is even more important. Especially EBITDA or SDE, which is essentially the business’s net profit, but adding back (depending on valuation method chosen by your business broker):
- Any personal expenses reflected as business expenses
- Any large, non-recurring / one-time expenses
- Owner’s salaries
- Non-cash expenses such as depreciation or amortization
- Interest and taxes
What this does is determine the real cash flow of the business, and how much a future owner can expect to gain financially from the businesses. Businesses than sell at a multiple of this number, depending on comparables of what businesses of similar size in similar industries are selling for.
Increasing this cash flow is the number one way to raise the value of your business.
Other Factors That Can Improve the Value of Your Business
The following factors can improve the value of your business, and also improve its salability:
Management in Place
Having skilled management in place that can run your business, or assist you in running your business, is a big plus, and favorably affects a business’s value.
Absentee Owner
The next level beyond just having management in place, if the business can be run without you being present, that is an even stronger selling point.
Clean Books
Having all your financials in order, and accurately reflecting the performance of your business, not only helps justify a higher selling price, but can improve the salability of your business as well.
Years in Business
The longer you’ve been in business, the stronger and more capable of surviving different business climates your business will appear. This has a positive effect on its value.
Skilled / Long-Serving Employees
Having a team of employees who’ve been with your company for many years speaks favorably about the company culture and the quality of its employees. This is a positive when a buyer is reviewing the business.
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Working on developing these aspects of your business will not only improve the value of the business when it comes time to sell, but also how quickly and easily the transition will occur!
Here at Capital Business Solutions, we are experts at the business of selling businesses. Interested? Call us for a free consultation!
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