The value of your business is partly determined by your industry. For example, cloud-based software businesses are generally worth a lot more than printing businesses these days.
However, when we analyse businesses in the same industry, we still see major variations in valuation. So we dug through the data available to us from our partners at The Sellability Score and we found 10 things that will make your business more valuable than its industry peer group.
1. Recurring turnover
The more turnover you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring turnover it will make your business much more valuable than those of your competitors.
2. Something different
Buyers buy what they cannot easily replicate on their own, which means businesses with a unique product or service that is difficult for a competitor to copy are more valuable than a business that sells the same product as everyone else in their industry.
Buyers looking to fuel their top line turnover growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall.
Tired old companies often try to buy sex appeal through the acquisition of a trendy young business in their industry. If you are the darling of your industry trade media, expect to get a premium acquisition offer.
If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licences to operate), you’ll have buyers who understand your industry interested in your location as well as your business.
Buyers pay a premium for businesses that naturally hedge the loss of a single customer. Ensure no customer amounts to more than 10 percent of your turnover and your business will be more valuable than an industry peer with just a few big customers.
If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to a buyer than an industry peer who doesn’t have a clue where their next customer will come from.
8. Clean books
Companies that invest in getting their financials audited are generally viewed by buyers as more trustworthy and therefore worth more. It’s worth seriously considering, even if audited financials are not the norm in your industry.
9. A 2iC
Businesses with a second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.
10. Happy customers
Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.
Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell; but whether you fall at the bottom or the top of the range it comes down to factors that have nothing to do with what you do, but instead, how you do it.