4 Reasons Why Value Building is So Important
Managing your business requires you to wear many hats, and the process of selling a business will add hours to your day. If your business is profitable, potential buyers should be attracted to your business.
You will benefit from building the value of your business before a sale. Building value may include making changes, or simply uncovering existing value that you can promote to buyers. Here are four reasons why value building is so important:
Building value can pay off in the form of a higher sale price.
Most businesses receive an appraisal, and the purchase price is negotiated, in part, based on the appraisal. You can make changes that result in a higher appraised value.
You may have multiple parties interested in your more valuable business, which can increase the price you receive at closing.
If you build value and decide not to sell your business, you can drive more profit from the company moving forward. Should you decide to sell the business down the road, you can demand an even higher price.
You only have one opportunity to sell your company, and a business broker can help you increase the value of the enterprise.
Factors That Increase Business Value
To understand business value, put yourself in the buyer’s shoes. What makes a business more valuable to a buyer? The buyer wants a business that can be transitioned to the new owner smoothly, and a company that can grow sales and profits. Here are some factors that increase value:
Differentiation From Competitors
Most businesses face a high level of competition, and companies succeed when they are seen as unique or different in the marketplace.
Think about the products and services that you purchase from the same business repeatedly. You may own multiple Apple products, and always consider Apple first when buying technology. Or, you may use Spotify as your preferred app for music and podcasts.
Consumers become repeat buyers when they view a company as better than the competition. High quality, innovative products, and great customer service can help you separate your business from the competition.
Consistent Financial Performance
During the COVID-19 pandemic, did your company grow sales and profits while other firms in your industry struggled? If so, your business is more valuable than the competition, and that positioning will attract buyers.
A company that consistently generates higher profits and cash inflows will motivate buyers. A purchaser wants a business that can maintain profitability in any type of environment, and buyers will pay more for these companies.
Generate Recurring Revenue
Businesses that generate repeat business through subscription revenue are particularly valuable. Netflix, for example, had over 207 million subscribers during the FIRST quarter of 2021, and recurring revenue allows the company to focus on making great content.
A business with recurring revenue can invest more time and effort to find new customers.
Building A Niche Business
If you know your customers and their needs, you can solve more of their problems. This is the benefit of developing a business niche.
The pet industry, a nearly $100 billion market, includes some interesting niches. Pet owners are buying pet supplements, and pet wipes are becoming a product category.
When you work in a niche, you can develop a better, more detailed understanding of your customer’s needs. In-depth customer knowledge helps you create new products to address the needs of the market and you’ll face less competition.
Technology allows you to complete more work in less time, and reduce the risk of errors. Analyze your business operations, and find ways to use technology. Many firms use technology to process accounting transactions, generate invoices, and to run payroll.
Many software applications can be integrated, which can save even more time. For example, accounting software may allow you to upload your bank statement directly into the accounting system, which saves time and reduces manual input.
Utilizing technology will help you lower costs, and your entire business will operate more productively.
The experience level of your team may be the factor that makes your business the most valuable. Your staff makes the decisions that produce a quality product, and they determine your level of customer service.
If the buyer can retain an experienced team, the transition is much easier, and the business will continue to generate profits.
A business that addresses each of these factors is more valuable, and can demand a higher price from a buyer.
An Example Of Building Value
Susan Frew, the Business Growth Director of Raincatcher, discusses the importance of value building in this interview. Susan has years of experience as a successful business coach, and co-owns Sunshine Plumbing, Heating & Air with her husband. Here are some strategies that helped Sunshine achieve rapid growth:
Do good work: Sunshine’s team provides expertise and a high level of customer service.
Ability to adapt: The business has changed its business model to meet client needs, including a video chat function for prospective customers.
Find your niche: Susan believes that business owners should “know your lane”, and develop a reputation in a particular niche.
Raincatcher is passionate about helping entrepreneurs buy and sell remarkable companies. Their business brokers have worked with more than 9,200 businesses over 30 years.
Get in touch with the experts at Raincatcher today, and ask us to help you uncover the value of your business, and make changes that increase value. We can help you sell your business at a higher price, and close a sale in less time.