How To Increase Your Business Multiple
If you run your own business, one of your aspirations will be business growth. Getting a solid customer/client base, good cash flow and profit are some of the obvious things you’ll want to achieve on your business journey.
Some business owners have the added motivation to grow their business because their end goal is to eventually sell the business and enjoy time with their family, pursuing other projects & enjoying the fruits of their hard work.
If you are looking to head down that path, then you might be interested in finding out what specific things will give your business a higher valuation when the time comes to sell.
How can you increase your business sale multiple?
There are several factors that affect your sale valuation multiple. The first one being - your revenue. The higher your revenue, the higher the multiple.
But, it’s not just your revenue. There are many other things that really influence how your business looks to prospective buyers.
Other key factors are:
- Profit margin. When potential buyers check your business performance, they’ll want to see healthy net profit margins. My recommendation is to aim for at least 30% so that you can show that your business can give a good ROI. If you are not there yet, think about what you can do to get that profit margin higher. It could be reviewing your operating costs, raising your prices, or making your business more efficient.
- Past trading. Showing a good track record will attract better buyers, and it will also boost your multiple. So, make sure you can present a trading history of increasing revenue, profit and size as opposed to a decreasing or plateauing.
- Client base. If you can show that you’ve got a consistent client base of A-grade clients - those that spend significant amounts with you and are returning customers, then your company will instantly look better in the eyes of the buyers. Have evidence of good trading history with them and also future maintainable earnings. Buyer will often pay a premium if that is the case.
If you can get all of these things right, you’ll ensure that your business will sell for a really good price.
However, if you’re not quite there yet, then I urge you to work on all of these aspects before you put your business on the market.
If you’d like to learn more, please take a look at my most recent podcast episode on this exact topic:
Click here for the podcast episode.
Click here to watch the video.
Josh ‘Business Sale Multiple’ Stone
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