How to increase your business’ value right now

DFN: I’m the CFO of a startup, Dear Jane, this article has got me thinking about what we can / should do to increase the value inherent in this startup. At the end of the article is an offer to let you signup for a newsletter, which is free, I’ve signed up for the newsletter based on the value of this one article. Here’s to hoping there are penalty more good thoughts / provocative ideas.

Selling Your Business: How to Increase Its Value Right Now
http://www.technibble.com/selling-your-business-increase-value-now/

When you are first starting your business, one of the last things you will probably be thinking about is how you are going to exit your business. However, this something that needs to be considered early on in your businesses life. Do you plan to sell the business and retire at 60 so you can live out the rest of your days playing golf? or do you plan to build the business up over the next few years and sell it for a healthy profit?

Whatever you do, you need to plan your exit strategy now because what you do in the present can greatly increase the value of your business in the future. So, what can you do now to increase the value of your business?

Keep a Client Database
For a business of just about any size, one of the most valuable items (aside from its reputation) is its client database. You should keep good records of your clients from your very first day and gather as much information as you can.

You can make it easy on yourself by using a customer relationship product like CommitCRM. Not only will this store all of your clients contact information, but it ties in with other important information such as jobs you have done for them in the past, how much they were charged, when they paid you and more. This complete record is attractive to a potential buyer because it gives them a look into your past relationships with the clients they are soon going to be serving.

The Business Phone Number
Another important item to a potential buyer is the phone number the business uses. Since this phone number is all over the advertising material that you have given to your past clients, that is the number they are going to call when they need their computer fixed. Obviously, the new buyer is going to want that. It is often a good idea to either get a specialized number for your business (like a 0800, 1300, 1800 number) or a dedicated land line or mobile phone as it is a major hassle changing numbers when your friends and family are used to calling you on your joint personal/business number.

The Business Name
The way you name your business is also an important factor. If you plan on selling your business one day it is a good idea to name it a brand name rather than after yourself. For example, “Joes Computer Repair” wouldn’t be much of a “Joes Computer Repair” without the actual Joe.

Client Diversity
Another important factor to a potential buyer is the diversity of your clients. If you have a single client that generates a large percentage of your work, it can be dangerous to you and the potential buyer. Let’s say your business generates $100,000 per year which makes it worth $200,000. You also have (or had) a big client that generates 50% of your income. One day this big client either finds someone better or just doesn’t like you or the new owner. Suddenly, the value of your business drops massively since your turnover is now only half what it was.

Procedures and Systems
Have you ever noticed that all McDonald’s restaurants operate the same regardless of who the franchisee is?
When a franchisee is buying a McDonalds franchise, they aren’t just buying the use of the McDonalds name. They are also purchasing the procedures and systems that made McDonalds successful. I am sure you can agree that there are better burger places than McDonalds, but what people like about McDonalds is its speed and predictability. It is like that because they have a refined system that they have perfected over the last 50 years and can replicate and any McDonalds restaurant.

You should document your own procedures and systems as the new buyer will want to replicate what made you successful. Also, by having this documentation, it makes it easier to train new employees since its all written down for them to read.

Keep Good Financial Records
Last but not least, keep good financial records. You should be doing this anyway but having a good record of your past finances is attractive to potential buyers. This can show them when the seasonal peaks and troughs are going to occur and whether the business itself is growing or dying.

Obviously, profitability is one of the most important things that will increase the value of your business. However, if the above factors are done right it will result in a much fatter wallet when you go to sell your business.

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Doug

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