University of Northern Iowa

 

 

6 Drivers to Increase Your Business's Value

Posted on Tuesday, March 21st, 2017

Anyone who has owned and then sold a home remembers the fun conversations you had with your realtor about the value of your property. It might have gone something like this:

You:  “We think our home is worth A because our neighbor got B or because we are assessed at C or because we paid D for it 15 years ago and have spent $50,000 fixing it up over the years.”

Realtor: “We think your home is probably worth E, based on these data points.” 

You: “Oh, uh-oh. That’s a little lower than where we wanted to be. Maybe selling right now isn’t going to work. If we want to get A for our place, what do we need to do?” 

Or maybe your response was this:

You: “Oh, ok. That’s a little lower than we wanted to be, but I took a new job in Timbuktu, so I guess it is what it is. We’ll figure out how to make up the gap when we cross that bridge.” 

Either way, my guess is you and your realtor had some differences of opinion on sale price, and if you didn’t with the realtor, you probably did with potential buyers.

This can be a very similar process for someone selling a business. 

You have an idea of your business value – it’s probably based on some sound logic – maybe competitors who have sold out, maybe book value, or a rudimentary multiple of EBITDA. It might just be what you think it’s worth and that’s that. 

Regardless of the number you have in mind, it’s critical for several reasons to get some outside validation and get a sense of where you really are. For most of our clients, their business’s value is the single largest (and often times only) source of contribution to their retirement funding. 

Once you have that valuation, you can compare it to your retirement needs. Is there a gap? In the housing market, if you have a gap between your expected value of the home and the realities of the market – we do some “lip sticking.” We get rid of the clutter, get rid of the orange shag carpet, tear out the wallpaper, maybe put in new appliances, etc.

Unfortunately, you can’t “lip stick” your business to increase value. It takes hard work and strategic planning to get there. We help our clients focus on the Big 6 value drivers – 1) Stable/Sound Management Team 2) Operating Systems/Procedures  3)  Diversified Customer Base 4) Realistic Growth Strategies 5) Effective Financial Controls 6) Stable and Growing Cash Flow

As you can see, it takes a little more time and sweat equity to build a management team or diversify the customer base than it might to redo the hardwood floors or replace some windows. Hopefully, time is on your side, and if it’s not, give us a call.  

Dan Beenken Jayne Kielman
Program Director Business Dev. Rep.
319-273-4322 319-559-0050
dan.beenken@advanceiowa.com jayne.kielman@advanceiowa.com