Succession Planning
The value of your company is partly determined by your industry. For example, cloud-based software companies are generally worth a lot more than printing companies.
However, when analyzing businesses in the same industry, we still see major variations in valuation. So ATB dug through the data available to us from our partners at The Value Builder System™ and found 9 things that can make your company more valuable than its industry peer group.
1. Recurring Revenue
The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business becomes to a potential buyer. Some form of recurring revenue increases your overall valuation.
2. Something Different
Companies with a unique product or service, difficult to replicate, are more valuable than a competitor that doesn’t have one.
3. Growth
Buyers looking to fuel their top line revenue growth through acquisition will pay a premium for your business, if it is growing much faster than your industry overall.
4. Caché
Older stagnant companies will often try to gain relevancy through the acquisition of a trendy younger company in their industry. If you are the media darling of your industry, expect to get a premium offer.
5. Location
Imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate. If your physical properties reside in a prime location, you’ll have interest from buyers who understand your industry.
6. Diversity
Interested parties value companies that naturally hedge the loss of a single customer. Ensure no customer amounts to more than 10 percent of your revenue and your company will be more valuable than an industry peer with only a handful of accounts.
7. Predictability
If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who doesn’t have a clue where their next customer will come from.
8. Clean Books
Companies that invest in audited statements have financials that are generally seen as more trustworthy and therefore worth more. You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.
9. Happy Customers
Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.
Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.