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4 Pillars That Influence Company Valuation When You’re Selling Your Business

Selling your business may not be at the top of your mind when you’re just launching your business. But there might come a time when you realize it’s in everyone’s best interest to transfer ownership of your business. And whenever you decide to do that, you want to negotiate the best deal possible with a suitable buyer.

With online platforms like Website Closers, finding trustworthy and verified buyers for your business has become straightforward. But it’s still up to you to ensure that you get the maximum value from selling your business. And the best way of doing that is to amplify the valuation of your company.

Of course, a steady and scalable revenue stream enhances the perceived value of your business. But buyers consider a plethora of other factors while assessing your company and negotiating a sale.

In this blog, we’ll discuss the most crucial factors that’ll affect your company’s valuation. Also, we’ll share useful insights into how you can maximize the value of your business. Let’s get started.

1. Diversified Revenue Streams

Does a majority of your business revenue come from a few selected customers? Or are you making most of your money by selling a single product or service? In either case, potential buyers would be thrown off by the limited availability of revenue streams.

That’s because if a few loyal customers account for a majority of your revenue, it poses a greater risk for the new owner. What if these customers are only loyal to your company because they trust your personal brand? Chances are they won’t continue to purchase from your company if a new owner takes over.

Also, generating revenue from a handful of customers poses other risks, such as a customer no longer needing your products/services or switching to a competitor. That makes it imperative to focus on diversifying your customer base. Make sure each customer doesn’t account for more than 8% to 10% of your overall revenue.

Similarly, concentrating all your marketing and sales efforts on a specific product/service could be catastrophic when there’s a decline in market demand. It highlights the need to expand your offerings, and include a wide array of products/services that cater to different segments within your target demographic.

2. Ease of Transferability

When Jeff Bezos stepped down as the CEO of Amazon, it didn’t come as a surprise to the board members and shareholders. The Amazon founder had already been minimizing his involvement in the company’s day-to-day operations for years. Instead, he was focusing on high-level strategic decisions.

That made it easier for Andy Jassy to step in as the new CEO without any hiccups. While the decision came as a shock to the public, the board had been anticipating it for years.

There’s a crucial lesson here that deserves the attention of every business owner.

If you intend to sell your business in the future, you must lay the groundwork for your exit strategy well in advance. If all your business operations are tied to you, it’ll complicate the transition for a new owner.

Buyers always keep an eye out for a hassle-free and straightforward transition once they take over.

Start by restricting your involvement in day-to-day decisions, and focus on more high-level operations. Also, build a stellar executive team to help the new owner at every step. Create repeatable processes that can be easily replicated in your absence. It’s just as essential to make your employees comfortable with the transition.

3. Documentation

Even if you’re operating your business from the basement or garage of your home, you need to up your paperwork game. Prospective buyers want to look at a wide array of documentation, from sales reports and tax summaries to contracts and standard operating procedures (SOPs).

Also, they’ll evaluate your company’s cash flow, earnings, and other financial documentation. If you haven’t been paying attention to official paperwork till now, it’s high time you get started. It’s a good idea to hire a bookkeeper or accountant, and use suitable accounting and reporting software to simplify the process.

4. Long-Term Planning

Where is your company headed in the next five years? Have you already funded the development of new products to target new market segments? Are you in talks with your investors about more funding? How will your company continue to stand out from competitors?

Any potential buyers would want to know the answers to all these questions. Make sure you have a long-term business plan ready for them. Outline how your company is to generate recurring revenue and retain paying customers.

Harness Your Biggest Payday

While launching your business is a rewarding journey, selling it at the right time can be the biggest payday in your entrepreneurial stint. Focus on organizing all your records and documentation, and create a robust long-term plan. Also, devise a strategy to make the transfer of owners as seamless as possible.

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