This message - written by Cathy Durham of Capital Valuation Group, Inc. - is Part II in our two-part series on increasing your business' valuation during quarantine or reduced operations. View
Part I here
It is worth noting that while this message focuses on steps you can take to increase the value of your business for future sale, the tips included in this message also increase the experience of working in your business right now. Having functional spaces, continuous revenue streams, and customer satisfaction are just some of the ways you can make your day-to-day business transactions smoother and more efficient.
Here are five additional qualitative factors for you and your team to consider:
Value Lever #6 - Researching Alternative Vendors
Just as reducing dependency on any one customer or key employee is wise, reducing dependency on any one vendor can also reduce the risk a buyer perceives. While it is not necessary to switch vendors entirely, researching alternative vendor possibilities to diversify your supply chain and begin to develop relationships with alternative vendors can have positive impacts on business value.
We’ve long counseled business owners about the importance of managing their gross profit margin (reducing cost of goods sold). Having a stable of alternative suppliers for price comparison and competitive bidding can bring real benefits, particularly as a company grows and has greater purchasing power. This can also be a good time to revisit how your vendor relationships support your business goals. For example, is it time to request extended payment terms, faster shipping or other higher levels of customer service?
Value Lever #7 - Brainstorming a Subscription Model
Having a continuous revenue stream is attractive to a buyer. If your business is project-based, and you are always looking for new customers - or if your business follows the “wait for the customer to call us with a problem” model - use this time to brainstorm how you might be able to improve consistency of cash flow by adding a subscription-model component. It could be a consumable refill, ongoing review or replacement of parts, offering ongoing preventative maintenance, analyzing data on equipment performance to lighten the client’s workload, monthly troubleshooting, or a refresh of prior work completed, to name a few.
Value Lever #8 - Facilities Maintenance & Clean up
While facility maintenance and clean up can include some monetary investment, there are typically things that can be done at a low cost that make a big impact if a buyer were to walk through your facility. Cleaning factory floors, washing walls, painting, adding or updating signage, sorting and labeling inventory and getting rid of clutter can improve the look and feel of your facilities or office not only to a buyer, but give employees a refreshed sense of excitement about coming in to work (either now or when they are actually back in the facilities/office).
Value Lever #9 - Visibility: Writing for Trade Publications
Strategic buyers often look for others in their industry who are doing things well when they are looking to buy. Your trade association and related publications can be the conduit you need for increasing visibility. Trade publications welcome the opportunity to feature an article authored by you or someone on your team that adds value to your industry while highlighting your company’s successes.
Share an idea or a process you used in solving a problem that all in the industry are experiencing (i.e., finding, motivating and keeping quality employees). If writing is not your forte, you can search Apple Podcasts for relevant podcasts and put together a pitch to reach out to the host with a topic that would be of interest to listeners and highlight your expertise similar to a written article.
Value Lever #10 - Customer Satisfaction
Customer satisfaction may sound like a given, but not all businesses have processes and procedures in place to actually measure customer satisfaction. Do you have a measurable way to get feedback from your clients? Keep it quick, simple and consistent with just a few questions you ask every customer; then be ready to respond when you get feedback, whether positive or critical. One question that encapsulates a number of factors is “Would you recommend us? If no, what do we need to do better?"
These are five qualitative factors that every buyer is interested in, yet not one of these factors is reflected on your company’s financial statement - five more reasons why a multiple of earnings does not equal the value of your business.