The 5 Factors To Increase Your Business Exit Value

In this video you’ll discover the 5 key factors that affect your business exit value.

[00:00:00] This past week I’ve been talking to a client who’s been really interested in how to increase his business exit value.

You see he got into business with the whole goal of being able to sell it at the end and make something of a pension of it.

So I thought it might be useful for you too, to understand a few of the things that can make quite a big difference to the way your business is valued when you sell it and in fact could make it more desirable rather than something that no one wants to buy I’ll see you on the other side in a moment.

Business Exit Value Factor 1: Sector

[00:00:35] So there are five factors that really affect the value of your business when you come to sell, and the first of these factors is the sector that you operate in.

We can draw this really simply with a dead simple model. So the sector is this big circle. Everything inside this circle. Every one of the businesses that is in this sector will be valued with certain parameters around it.

So every 35 millimetre film manufacturing company would have had a suppressed valuation when digital photography came in because frankly it was a business with no future. We also saw Internet businesses getting a big inflated valuation around about year 2000 in what they called the Internet bubble. When everyone was trying to ride the bandwagon even if the business model was ridiculous.

So your sector defines the level of valuation, the biggest expectation, you can realistically expect to have. Then inside of that you’ve got four factors.

Business Exit Value Factor 2: Assets

The first one is the assets and the assets are all of the hard things your business owns.

So things like machinery and equipment, things like stock – whether that’s for manufacturing something or whether its stock for selling ready for sale it would be absolutely anything that your business can say yes we own this.

So intellectual property would be included within that as well and also perhaps things that are a bit softer but also valuable like a list of customers and so on. Its the hard stuff that you can put your hands on.

Business Exit Value Factor 3: Performance

[00:02:18] The next thing you have to think about is the performance of the business.

So… your business – how its done over the last year, two years, three years is a big indicator for the buyer of how successfully its been run and how likely it is to be successful in the future.

So having a strong performance before you sell is really important. And that means profitability as well as turnover. So make sure your business is doing well if you want to get the best value for it. That’s pretty obvious really isn’t it?

[00:02:50] And then the next thing we have to think about is what the buyer can realistically expect for themselves when they’ve bought your business.

And so there are two more big factors we’ve got to consider.

Business Exit Value Factor 4: People

The first of these is people. Who have they got within the business that can keep things running.

If you are the centre of absolutely everything like the hub on a wheel then without the hub, the wheel doesn’t work. So if you right now are the hub of your business you’ve got to find a way of making the work business work better without you, which is part of what Double Your Business Coaching does.

[00:03:27] But it’s really important because if you don’t have that ability for the business to run while you’re not there how can anyone buying the business expect to do the same as well, so they can’t run the business if you’re needed. So you’ve got to figure out a way of handing that over to them.

Business Exit Value Factor 5: Potential

[00:03:46] And then finally you’ve got to think about the potential of the business. And the potential’s really simple. It’s how much can you persuade your buyer that your business is likely to be able to grow.

And the more compelling a plan you can put together for them the more exciting, the more detail than the more credible, the more believable your plan for growth and for the future of your business being bright and rosy, the higher the valuation it’s going to be.

[00:04:19] When Facebook sold, lots of people were saying that the original flotation price on the stock market for Facebook was far too high because they’d never shown decent profits. But people who invested in it – the big corporates investing in it, understood that with such a massive audience of some 2 billion people a day using it they were absolutely on to something in terms of a medium for advertising – so they could see massive potential.

[00:04:48] Okay so you have got your five factors that will dictate the price at which you can realistically expect to sell your business. The sector. the assets, the performance right now, the people in it and how many of those people are going to be locked in and able to keep working for the new owner – including you. And finally the potential.

[00:05:10] I hope that’s been useful to you and obviously if you’ve got any thoughts or questions on increasing your business exit value then just leave a comment below…

8 Comments

  1. Iain on February 26th, 2017 at 10:08 am

    Great to see you using video so much these days Lee. Excellent info as usual – well done:)



  2. Lee on February 26th, 2017 at 10:54 am

    Cheers Ian, I think doing ad-hoc videos like this is an easier way to share info.



  3. Adan on February 27th, 2017 at 8:01 am

    Great video and top content as always



  4. Lee on February 27th, 2017 at 12:15 pm

    Cheers Adan, glad you enjoy it.



  5. Craig on February 27th, 2017 at 1:17 pm

    Brilliant – Thanks for sharing



  6. Lee on February 27th, 2017 at 1:34 pm

    Cheers Craig.



  7. Danny on February 27th, 2017 at 7:25 pm

    Excellent Lee, Thanks.



  8. Lee on February 27th, 2017 at 8:15 pm

    Glad you found it useful Danny. I quite liked developing this model as it shines a light onto a common question and helps to break away a little of the mystique that seems to surround business valuations.



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