Increasing the value of your business is all about the owner's discretionary earnings. Nothing more or less. What is yours?
Why Your Business May Not Sell
Business selling studies have shown that about 25% to 30% of small businesses that placed themselves for sale actually sold. The primary reasons are that the existing business owners had unreal values in mind for their businesses that were based on more emotion than calculation. The other reason is small business owners tend to create long-hour low-paying jobs rather than businesses so there is little to no actual value that anyone wants to purchase. As a general rule, new buyers do not want to purchase a business that cannot operate without the business owner being there 24/7. Buyers want to buy businesses, not jobs.
Also Known As Seller's Discretionary Earnings or SDE
Business owners are normally very good at what they do which is being into auto repair, or hair styling, or construction, or computers, etc. But they tend to stink at truly building a business and paying detailed attention to the bottom line. This is why most don't sell. Paying strict attention to your Seller's Discretionary Earnings or the profit that is available to you as the owner to take home is where the value lies in your business. It is after all the expenses including paying for a business manager so that you the owner are not required to be there for the business to operate successfully.
What Is Your Business Really Worth?
Again this is a calculation and not about your emotional involvement. A standard multiple of 3 to 4 times your Seller's Discretionary Earnings is a typical appraised value for a small business with revenue under the five million dollar a year mark. That means knowing at all times what your SDE is and trying to keep it maximized is the best way to know the true value of your business and be comfortable that your business will be attractive to many potential buyers. Not having a clue what your SDE is will almost certainly make sure your business will not sell or at least not be worth nearly what you believe (emotionally) it is worth.
The Best Ways To Increase Your Business Value
1. Improve your gross margins. Revenue for the sake of revenue means nothing. Revenue with-profits is everything. Make sure that everything your business sells something you are making as much on that product or service as the market will bear. Selling things at a loss and trying to make it up in the volume is a losing proposition and your business ends up being worth nothing. The higher your margins are the more your business is worth.
2. Clean and consistent operations. Potential buyers want businesses that operate without them. That requires you have effective operations in place that do not require you to be there overseeing everything all the time. Providing a new buyer with a proven operations manual showing how your business does its daily operations without you goes a long way to closing a sale.
3. Growing not contracting. Potential buyers usually want to see the books for the last three years and want to see that revenue has grown year to year. If the original owner and founder could not grow it, then how can they be expected to grow it? Focus your attention on that which grows your business year to year while at the same time expand your bottom line and you will have a business that buyers will fight over to purchase and lenders will love to finance for those buyers.
Inside the Level4Finance business success system, you will have access to step-by-step comprehensive business credit building instruction to obtain everything you need to build and maintain strong business credit scores and to pre-qualify for a spectrum of business loan programs.