If you’re like most business owners, the business itself is your retirement fund… it’s your 401k.

If that sounds like you, then the most critical part of your exit plan should be focusing on value optimization -- right now. 

If you’re thinking about selling your company in the future, you need to have an unbending focus on the four key value drivers we’re going to discuss in this post. Focusing on value optimization today can substantially increase your company’s sale price in the future.

These four value drivers help increase the value of your business by reducing ownership risks, while at the same time increasing revenue growth and stability.

Concentrated effort in these areas will create sustainable and ever-increasing cash flow, improve your operational performance in the short-term, and increase your business’s value in the long-term.

1. A stable and diverse customer base

A solid and diversified customer base is crucial for long-term success and maximizing your business valuation. Retaining these customers will be critical to your margin growth and scalability. It is 5x cheaper to retain a customer than it is to try and find a new one. So, customer loyalty and stability are key.

Spreading your revenue across a diverse customer base is also essential. By managing your customer concentration and developing a broad customer base, you can lessen the risk of losing a large source of revenue unexpectedly by reducing your dependency on a few ideal customers. 

A good rule of thumb is to not have a single customer account for 10% or more of your revenue.

We’ve had great success selling businesses with a high customer concentration (as high as 96%), but businesses with a smaller customer concentration almost always have more buyers at the table and sell faster.

2. A motivated and dedicated management team

A good management team usually foreshadows continued success. Your management team should be able to run your company without you, so retaining top talent is essential. 

The variety of knowledge, skills, experience, leadership, training, and creative abilities shape your business. They also play a huge role in creating the company’s culture and maintaining customer relationships.

This is why it’s important to have employee incentives that reward increases in company cash flow and profitability. 

3. A sustainable and recurring revenue stream

Recurring revenue streams ensure predictable cash flow and sustainable profit margins. They also help establish deeper customer relationships and increase customer retention.

Your recurring revenue can be content-based, product-based, or service-based. All are fine as long as they're stable and constantly growing.

Having a recurring revenue base will help you reduce the risk of a catastrophic impact from the failure of any one product or service. 

4. A unique product, process, or service

In today’s global economy, if you want the highest valuation and the most bidders at the table, you must be unique. You need to have a differentiator that brings high value to your customers, and they can only come to you to get it.

In some cases, that’s your own unique process that simplifies things, speeds things up, or drives cost down. In other cases, it could be a patented product where you have legal protection against copycats. In still others, it could be a service that you provide where the value you offer is so high and the barriers to entry are so great that competitors are few.

In either case, your differentiators should be as visible on your income statement and your balance sheet as they are on your marketing collateral. Be prepared to defend them, because they are one of the biggest keys to a successful exit at top dollar.

Maximizing your business valuation isn’t an overnight thing. It can take years to increase and improve your business’s value drivers. The key lies in your providing consistent focus and improvement in all four of these areas. 

If you want an objective, thorough evaluation of your value drivers and your potential business worth, give us a call or apply online for a no-cost strategy call and assessment.

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