26 May What is Value Enhancement and Why Does it Matter to Me?
You may have heard people talking about the importance of “value enhancement” but perhaps you were unsure what this term really means. When it comes to companies, value enhancement is all about increasing the relative value.
Of course, any business owner would want to be on the high end of the curve in order to garner the highest valuation for their company at the time of sale. That’s why one of our jobs is to guide our clients to improve value so that they are ultimately satisfied with the numbers when they sell.
How Does Value Enhancement Impact Your Sale?
Whether you’re planning to sell your business to a third party buyer or to your managers, you will want to maximize what you walk away with for yourself and your family. Or perhaps you intend to build another business and are seeking to fund the new business from the sale of your current business. That’s why it is important to understand all aspects of your company’s financial performance and what drives value that buyers will pay for. It’s time to take a good look at where your company is today and consider where you would like it to be.
What Elements Increase the Value of a Business?
There are a number of drivers available to increase the value of a business. Common elements include reducing owner (and key staff) dependency, building a management team, creating a sustainable competitive advantage, robust processes and systems, and positioning your business for strategic acquisition. These are areas that Austin Dale Group explores with our clients before we take them to market.
Focusing on Risk Reductions
As you might imagine, any buyer would be willing to pay top dollar for a company that has positive cash flow with few risks. That’s why the reduction of risks faced in the business is one of the best ways to create an immediate increase in value, as new owners will be prepared to invest at a premium in return for reliable ongoing business income. When buyers consider risk, they will consider your books, records and tax returns as well as your equipment, inventory, location and employees.
Building recurring revenue is a popular strategy to reduce perceived risks. When there is significant recurring revenue buyers will know that they already have a predictable and stable flow of income coming into the organization. That also means that your buyer can now spend his or her energy growing the business rather than seeking to confirm new or repeat business. Businesses with more recurring revenue almost always gain higher relative valuations.
Our Job at Austin Dale Group
At Austin Dale Group, we work with you to minimize risk by ensuring you have good financial records and reporting, an appropriate business structure, strong protection of your assets and mitigation for all the other potential risks.
Our process includes identifying and improving these drivers, based on the available time before the sale, to give your business the best chance to stand out from the crowd and be sold for a premium. Click here to learn more about our value enhancement services.