Business Exits
Business Exits

How can you multiply your business value?

23 January 2021

The key to increasing your business value at exit is to make it hard to compete with and more profitable.  Buyers are looking for businesses that have sustainable competitive advantages, in stable or growing markets.  

Become hard to compete with

How do you do that?  Here are five examples:

  1. Lock customers in.  Buyers will pay more for a business that has long-term customer contracts and competitors will find it harder to grow if there are fewer opportunities to attract your clients to their brand.  If you’re currently dealing on 1 or 2-year contracts, what would it take to lock in clients for 3 to 5 years?  
  2. Programmed new product or service development. If you are first to market with new products and services, competitors will inevitably lag behind.  Do you view your research and development efforts through the lens of competitive advantage or has that department lost focus?
  3. Package deals.  Broadly speaking, there are three ways to grow your business. 1. Attract new buyers.  2. Sell more often to your buyers.  3. Sell more each time you make a sale.  Package deals work on the third principle.  If you’re managing to increase your share of your buyers’ wallets, competitors are fighting for fewer dollars of profit.  If you can package in a product or service competitors can’t match, you’re making it harder to compete.
  4. New market places. Finding new markets and being more aggressive than competitors at entering them will make it harder to compete with you.
  5. In-house brand development.  If competitors cannot access your brand, and you are able to create demand for it in the market, you have built a natural competitive advantage.

There are many more, of course.  And it’s easy to list off any number of alternate suggestions, but how do you know which one is the right strategic option for you?

Identify and exploit opportunities

Market and competitive intelligence hold the answer to selecting the right strategic options to make more profit and make it harder to compete with your company.

Market intelligence supplies insights into what your current, past and potential buyers think about your products and services.  It can also help you uncover unrecognised problems that no industry player is yet addressing, leading to new product development initiatives.

Competitive intelligence helps to determine your competitors’ likely next moves.  An evaluation of their strengths and weaknesses will point to the strategic options most likely to lock in a competitive advantage and bolster profitability.  

A proper market evaluation will produce clear guidance on the best strategic alternatives to pursue. 

Control cost and waste to reveal value you have already built

There’s a business average that suggests 30% of turnover is typically gross profit, and 10% is net profit.  In such a business, every dollar of cost reduction you can achieve is equivalent to $10 in new sales.

Alongside building competitive advantage and making more profit from sales, finding cost savings will help to build exit value.  But don’t think that just by drastically slashing costs in a single accounting period you’re going to fool your buyer.  Part of the due diligence involved in a purchase will see operating costs from one period to the next examined in detail, and large differences will be noted and interrogated.

Buyers are aware that a single period of cost reduction might not represent the true picture.

The way to lock in value at exit is to show that your company’s attitude to cost and waste reduction is cultural, not spontaneous.

Read more about cost reduction here.

One more tactic: break new ground

All the tactics we have written about to this point are evident and proven by the time your buyer arrives on the scene.  You can point to the strategies and the tactics that brought them to life.  But buyers will pay a premium for an opportunity, if it’s credible.

What do we mean by that?  Being able to describe how your company is uniquely positioned to take advantage of a market opportunity that will produce a return of $X in a given time period.

Credibility comes from your business plan and demonstrating that you have the required resources in place to achieve the predicted outcome.

Your plan, in turn, comes from well-founded market and competitive intelligence and internal planning that creates your competitive advantage.

Don’t leave it until the last minute

When you give yourself just three to six months before selling to make changes, you minimise your options for value capture.  Then you are faced with making short-term cost reductions to “show” increased profit, hoping your buyer won’t notice what you have done.

Moving numbers around on a page and engaging in some sleight of hand to leave it up to the buyer to work out the true value is too risky.  You are leaving it to chance that you will find the right buyer at the right time with their own motivation for buying your business.

When buyers proactively approach you and offer to buy your company for a multiple of 5 to 10 times turnover, that’s when you know you have the formula right.

To make lasting changes that increase profitability in the short term and business sale value in the long-term, talk to us.  Call us on 1300 36 20 27 or send a message from this page.

 

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