This is the second in a series of suggestions for small business owners on how to start now to create value in their business. There are things a small business owner can pay attention to now that will give their small business resale value in the future. If one waits until he is ready to sell, it is often too late to create this value, which may increase the business’s time on market and decrease its ultimate resale price.
Earlier, I discussed the bottom line, and how showing a profit, year after year, creates an easy to tell story of business value that potential purchasers and lenders will listen to. Today, I want to discuss the top line – gross revenues – and its impact on resale value.
- Grow Annual Gross Revenues. It is not hard to have a steep growth curve during your start-up and ramp-up phases – the first 3-5 years of your business. But after that many small business owners become complacent about gross revenue. The business is doing fine, they are making a decent enough living, and the focus tends to be on maintaining the status quo or growing profits by cutting expenses and streamlining operations. While profit is the measure small business owners tend to focus on, having a long-term growth curve tells a great story about your business and will go a long way to attracting a buyer.
A buyer is likely to be using a significant portion of your businesses cash flow to pay you or repay his lender or his 401(k) over the first 3-7 years he operates the business. A profitable company with a flat growth curve means that if the buyer wants to make any significant money during that time, he will have to change things up and figure out a way to grow the business. But if you can show a long-term (3-5 year) steady growth curve, you are selling him not only your profitable business but also the way for him to grow the business and therefore have money during the buy-out period. This makes your company easier to sell – all other things equal a buyer is buying the growing company. So begin now to focus on how to increase your top line, year after year. You will find that it doesn’t take much more than what you are otherwise doing to run your company, or certainly what you did to grow the company in the first place. It mostly just takes intentionality.
Next: Create and Manage Intellectual Property