Little Known Ways To Increase Your Small Business Valuation [5 Steps]

INTRODUCTION:

Too many small business owners have little knowledge of their business's worth. For small business accountants to say it's worth about 3 times profit before interest and tax (EBIT) might be true in some cases but small business valuations take far much more into account than historical numbers. Multiples of EBIT can vary wildly when it comes down to the crunch and the true EBIT needs to be examined for adjustments that business valuers will look for when it comes to the time to sell your business.

To be forewarned is to be forearmed so why not understand you business's true worth now and what steps you need to take to make it more valuable almost immediately? Here are some tips below you may find useful.

Figure 1: David Bowie was the master of reinvention! How do you ensure your business keeps evolving to improve its value? Photo courtesy of artist Helen Green 

1. Understand your brand

People talk about businesses having a 'good brand' and it is true that if you have a good brand you will usually sell your business for higher amounts than those who don't. What is a brand? Here is a simple formula.

Brand = Reputation + Reach

To have a great brand you need to have a great reputation. How would you rate your business reputation? Have you surveyed your customers or obtained testimonials? Have you put these on your website so you can pass what is called these days as the "Digital Interview".

Having a great reputation is only part of the story. You need that reputation to be far reaching in order to have that great brand.

How are you spreading the word about your reputation? What is your marketing plan? Do you have a digital strategy and how are you using platforms such as Facebook to share the news? Having strategies such as tagging and putting testimonials up on social media will improve your brand over time.

2. be the purple cow

I'm not sure if you have ever read the book by Seth Godin but it's a must read and is so important to improving small business valuations in Sydney.

Having a point of difference is so critical these days or you will constantly be competing on price in many cases.

What is your competitive advantage? If you have a strong one, your small business valuation in Sydney will be much higher as there will be less risk to the buyer.

Remember, "unless you become a purple cow, you will become invisible!"

Figure 2: How does your business stand out? Photo couretsy of Seth Godin's The Purple Cow

3. become world class

What are you doing to make your business world class? It could look like this:

World Class = Process of McDonalds + Simplicity of Apple + Energy of Virgin + Authenticity of You

What processes do you have in place to deliver a consistent product or service?

Is your company easy to deal with and is it a can do organisation?

As the business owner, do you have business energy? If not, how can you possibly expect your team to be energetic?

Finally, if your business ethics are poor nothing else matters.

4. get a database

If you want your business to have more value than you need to have a database as they are valuable. We see this time and time again and even when Dick Smith went out of business the one thing others wanted was their database! We recommend you:

Get a fit database not a fat database!

Figure 3: How big is your database but more importantly is it relevant to your target market and cleansed?

5. seek advice from your small business accountant &/or Business valuer

Never rely on a rough rule of thumb as to what your business might be worth. Get an experienced advisor that can give you a realistic view of where you sit now so that you can then sit down with your small business accountant and plan for a bigger and better future.

CONCLUSION:

If you have a small business, why don't you make sure it's a great one? Improving its value will not only increase profits now but a higher multiple can mean that for every $1 extra profit you make from now could see a return of up to $5 in return on sale or even higher!