If you own a business and would like to attract investors or buyers, increasing its value should be your No. 1 priority. There are many tactics such as cutting costs that you can implement to drive you toward your goal. According to a 2017 Sageworks study, businesses with less than $5 million in annual revenue experienced about 7.8% annual sales growth. However, if you are in tech or a healthcare-based industry, 20% growth may be common, according to a 2017 Kauffman Foundation report.
It’s important to benchmark where you are. Proactively searching for new opportunities will set you apart from the competition. Here are three ways to maximize the value of your business.
1. Optimize Your Cash Flow
Staying on top of your cash flow is crucial. If you haven’t done so already, I’d suggest incorporating a cloud-based accounting platform to streamline your financial management. As you expand, you will need access to your financials, including your profit and loss statement, balance sheet, and cash flow statement, on-demand.
Instead of bringing the accounting in house, you might consider outsourcing those functions to a third party. Bringing on a fractional CFO and a remote bookkeeping team will help you stay on track while controlling costs. Growing your revenue while increasing your margins will help you get to where you want to be. This is incredibly important if you want to get an equity infusion or sell the business as a part of your succession plan.
2. Purchase Assets
There are cases to be made for leasing assets. However, if you would like to maximize the value of your business owning assets is the way to go. If you finance the asset, it ends up on your balance sheet and you can deduct the interest on the loan.
Be sure to consult with your tax adviser. It is also important to utilize lines of credit and supplier financing. Have a conversation with your bank and several suppliers. By negotiating terms in advance, you’ll be in a stronger position when you need to access those funds. This is a great way to leverage your cash to invest in additional business assets.
3. Develop new revenue
It pays to tighten up your service experience. After all, it’s less expensive to service an existing customer than it is to acquire a new customer.
In addition, a single customer should not contribute more than 20% of your revenue. If so, you are at risk of a serious cash-flow problem should that customer decide to look elsewhere. Consider tapping into your network of suppliers to ask for referrals. Your supplier should be familiar with the products or services that you offer. Educate them on who your ideal customer is. This is a long-term strategy that can lead to significant revenue.
You should also look at partnering with businesses in different industries who also sell to your customers. These alliances can yield attractive results. Make sure you have an agreement in place to define the nature of the partnership. Be sure to consult with a business attorney. There is a multitude of ways to grow your business. Find out which ones work for you and put your resources behind them.
With a little creativity, your growth will exceed your industry’s benchmarks. Consider working with a business adviser who can help you design and implement a growth strategy. With the right team in place, you will have a higher probability of maximizing the value of your business.