Have you ever wondered how to boost your business valuation and maximize your business worth? Do business valuation methods seem hard to understand? Consilue business valuation experts gathered tips & tricks how to boost the business valuation without knowing anything about complex business valuation techniques.
Business valuation determinants
The business valuation is affected by cash flows from operations, changes in net working capital, net investments, growth potential and underlying risks. Any measures improving these determinants will influence the business valuation.
However, not everything is in the power of companies to influence. Business worth is significantly impacted by macro factors. In this context one should understand the importance of economic climate as well as industry developments and trends. This is why timing to M&A is very important.
Hint: As consultants we often prefer to present the client the value development cycle. Business valuations in various points in time is a good reference point for them to see if they are confident with the current business worth.
Prioritizing the measures – doing the right things counts
The more value the company adds to the supply chain, the more important player it is and higher it will be its business valuation. For that reason, it is important to understand first the needs and requirements of key stakeholders and ways to meet them effectively and efficiently. Based on that fact, one should then be prioritizing the tips & tricks shared below …
Tips & tricks for higher business valuation
Step 1 to higher business valuation: Ensure high cash flows from operations
– Differentiate your business
– Brand your product
– Tie your clients to your products/services
– Focus on most profitable products and/or services
– Acquire the right sales & marketing techniques and grow your revenue
– Appreciate and retain your key employees
– Establish barriers to enter the market
– Gain bargaining power against other companies in the supply chain
– Exploit large prepayment discounts
– Supervise the COGS
– Enhance the productivity of employees
– Optimize interest rates and taxes
Step 2 to business valuation boost: Optimize your net working capital
– Establish partnership relation
– Negotiate better payment conditions
– Optimize inventories and inventory turnover
Step 3 to business valuation: Optimize your net investments
– Be aware of consumer trends
– Choose the right timing for acquiring new technologies
– Carefully plan capital investment – make investments that will support growth
– Increase the capacities in line with demand
– Ensure that the level of investments covers the growth potential
– Optimize financing
Step 4 to business valuation: Enhance your future growth potential
– Innovate with business model and come up with creative strategy
– Rethink processes and stick only to those that add value to your clients
– Develop new products and services
Step 5 to business valuation: Minimize the risks related
– Keep the level of indebtedness at the level of comparable companies
– Endeavor appropriate product/service mix diversification
– Disperse your sales geographically
– Gain deals of appropriate size
– Supervise the creditworthiness of clients and suppliers
– Assure the level of fixed costs as low as possible
– Inform owners extensively and on a regular basis
– Give priority to transparency
Maximizing the business value is the most important criteria there is in running your business. For that reason it is important to follow the value of your company continuously, strive to bring the value maximization goals closer to the stakeholders involved, introducing the value based management techniques and setting up the KPIs based on value maximization principles etc.
As a rational investor, one should always keep in mind also the exit strategy. The fact is that as an owner you will not be able to run or follow the company forever, so have a plan how you plan to divest your investment from the very beginning.