Simple Strategies for Increasing Business Value Before M&A
An Inc. Magazine report just reported that 10 million small businesses will likely enter the market in the next five to 10 years. There’s an M&A bonanza on the horizon, but owners should expect an increasingly competitive sales environment. To get the most out of any sale, now is the time to start thinking about how to increase value. These simple, commonsense strategies work well no matter what industry you’re in.
Decrease Your Risk Profile
Buyers want a sure bet—not a high-risk proposition. One of the best ways to improve value is to make your business a less risky investment. Some of the most effective ways to do this include:
· Diversify. This includes your customers, products, suppliers, and potentially all three. You need alternatives if unfavorable circumstances rear their ugly heads, and that’s exactly what diversification offers.
· Build up your team. One of the most common issues small businesses face is excessive owner dependence. If you are the key operational person in your business, then as soon as you leave, value will begin to decline. Build up a strong team, and value won’t take a hit when you make your exit.
· Stabilize cash flow and revenue. Businesses need stable, predictable cash flow to reduce investment risk. Recurring revenue from subscription services is one popular way to achieve this. A loyal, diversified customer base is another.
· Streamline your systems and processes. If someone were to take over your business tomorrow, would they know how to run it? Would your systems make sense? You can greatly improve value by implementing replicable processes that work and minimize risk.
Increase Cash Flow
The second aspect to value is, of course, cash flow. No matter how much risk is involved in running your business, your company will be a more attractive target with improved cash flow. No single recipe can help every business become more predictable, but a few strategies can help:
· Budgeting: Budgeting won’t create money where none exists, but it will help you understand where your money is going, and how you might better use it.
· Financial analysis: You need to know how your cash flow and budgeting compare to comparables within the industry. This can be an eye-opening experience that reveals both weaknesses and strengths, so don’t shy away from hiring a professional to take a long, hard look.
· Treating your people right: Employee compensation must be tied to productivity or performance wherever possible. Create a culture that rewards hard work and results—not endless busy work. Optimal benefits and independence to do the job well tend to attract the best people.
The more time you have to increase value, the more opportunities you will have to fine-tune your business and make it a more attractive target for potential buyers. So work with an M&A advisor to identify potential additional sources of value, and begin your exit planning as soon as you begin considering a sale.
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