How to Increase the Value of a Company and Exit in Five Years

Many business owners and entrepreneurs want to know how to increase the value of a company and exit in five years. Maybe it’s even ten years down the road, or you have a family member or key salesperson who could be part of your exit planning process. Most business owners don’t want to retire, they don't know what they would do with their life! On the other hand - successful business people get to a point where they definitely want to work less, enjoy life more and maybe even travel.

If your company can continue to operate without you, if you are on vacation for two weeks, with no internet or phone access then you have probably created a sustainable business model. And that is what buyers are looking for - business models that are not reliant upon one owner and are transferable. So how do you increase the value of your business? One of three things have to happen: 1) increase sales or 2) decrease expenses or 3) decrease the risk of the cash flow continuing such as decrease the reliance on one owner for all revenue.

Let's focus on increasing sales. This is where you need to get MORE clients or customers. Or...do you just need to get BETTER clients? I think we need to operate as if we are always busy which means you really push to make sure the new client is really the RIGHT client. When we are busy we don’t say YES to everyone, we are a little more discerning about who we work with. Sometimes we can even push for a higher price, because we know we will have to work more hours or we have to spend more time with this client – so it better be worth it – right? If we are just trying to close the deal, then we may second guess our VALUE to the client and we may even lower the price because the client is pushing us to negotiate our fees or prices. I think we should operate a little differently – if we make sure that the client is the right fit and if we bring value to the client, then they will gladly pay for our services.

So how do you bring value to the client BEFORE they hire you? Give them value for free, either with a free webinar, in-person consult or free telephone call. Or – like this video – give them some free knowledge. What does your ideal client really want? Is anybody even giving away TIME for free anymore? Another way to provide value - show them everything you know about a certain topic, their industry, this specific product you have, don’t hold back on the good stuff. There will always be more good stuff to show them as you work together. When we know our business and have the decades of experience – we will continue to bring value to the client’s specific situation. Shift the focus from you to them! Instead of impressing them with your background – impress them with what you know about them or their needs!

Focus on the client. You can also grow your business through social media content, video marketing and networking events. So now – how do you decrease expenses? Well you need to know what the past five years looked like because a buyer is going to want to know the history. After you know your past, you can make some different choices for the future. Finally the risk part, the value of your business is derived from cash flow and then reduced by the risk that the cash flow will continue. That’s the math – cash flow divided by capitalization rate or risk factors. If you really want to sell your business you could do a valuation each year the costs are lower for these “updates” each year. Then when you are really ready to sell – you would hire somebody such as a business broker and they would run an auction style process to sell your company.

The true “market” price of your company is reliant upon the investment banker and how successful they are at managing the auction process. It’s like with anything. If there’s only one buyer then the buyer might be in control of the price and the specifics of the transaction. This is typically considered strategic value or investment value - or when you sell your business to another industry player or somebody with a similar business. This value is typically higher than fair market value.

We have other videos about these concepts. Are you looking for more information on how to grow your business in a certain industry? Would you like us to create some videos about your industry niche or questions? Call or text us your questions to (314) 541-8163. Subscribe to our YouTube channel to see the videos once they are released. www.youtube.com/BusinessValuationStL