10 Things That Make Your Business More Valuable Than That of Your Industry Peers
The value of your company is partly determined by your industry. However, within an industry there can be major variations in valuation and the following items seemed to lead to those differences.
- Recurring Revenue – The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable that those of your competitors.
- Something Different – Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable that sells the same commodity as everyone else in the industry.
- Growth – Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster that your industry overall.
- Cache – Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry. If you are the darling of your industry, you can expect to get a premium acquisition offer.
- Location – If you have a great location with natural physical characteristics that are difficult to replicate, you will have buyers interested in your location in addition to your business.
- Diversity – Acquirers pay a premium for companies that naturally hedge the loss of a single customer. Ensure no customer amounts to more that 10% of your revenue and your company will be more valuable that an industry peer with just a few big customers.
- Predictability – If you have 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 plan of how to attract their next customer.
- Clean Books – Companies that invest in audited statements have financials that are generally viewed by acquirers 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.
- A Second in Command – Companies with a second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner
- 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.
Your industry typically defines a range of multiples within which your business is likely to sell for; but weather 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.