5 Tips For Improving Your Businesses Value
In previous blog posts I have discussed why deals fall down and how to prepare for a sale. However, it occurred to me that I should perhaps give some general advice on how to improve the value of your business. Not to give away any secrets but the trade should be aware that when we are asked by banks and lenders to value a business we don’t just look at the turnover, we multiple the profit as the main factor in judging the businesses value. The number we use depends on many factors such as location, condition, style, stability, and tenure to name a few. This blog is designed to give you a few ways you should be able to improve the value of the business if a bank Valuer is considering its value for any reason. These tips should also help you prepare your business for sale to maximise the value you can achieve.
1. Condition. It’s the obvious one, regardless of whether or not it is owned by the business or leased, if the building which your business occupies is not in a good condition it will affect the multiplier which we can use. Therefore, keep your property in good condition. Not only does it improve the value of the business it keeps your customers coming back, which helps your cash flow and of course your profits!
2. Gross Profit Levels. There are many ways you can achieve better gross profit margins. You need to look at regular stock takers reports, wastage, spillage, portion control, etc. There are procurement specialists out there who can streamline you whole purchasing methods cutting back on bookkeeping and other invoicing issues. Remember that every % of GP you save goes straight to the Net Profit or EBITDA. It’s the first thing a Valuer looks at and therefore you should take care to maximise your GP.
3. Staff levels. This is one of the hardest items of expenditure to get right. We have industry standards that we expect to see, of course we do. However, it is so easy to say you should be achieving X% of turnover, but how do you do it? Low staff costs show an owner who is involved, is there working hard and keeps an eye on what staff are doing. That being said I do know owners who are there but still struggle to keep staff costs low. Addressing this will show an improved bottom line immediately.
4. Improve your Expenditure. Are you focused on what you are spending across all your departments and business? If not why not? There are a multitude of accounting packages that will allow you to monitor your profit and loss, daily, weekly, monthly and will help keep your bookkeeping and accounting costs down over the year. Use technology to help simplify your business, reduce your expenditure which will improve your businesses value.
5. Grow your business. I have perhaps left the hardest one to last. You are perhaps thinking of selling, you have looked after your business for years and tried everything you can think of to grow your business. How can you do it? I do not have the answer but have you reviewed everything? What does your website look like, are you using Facebook and Twitter effectively, what other advertising are you doing? There are advisors out there who can make a difference. I regularly see failed units made into a success, business properties bought cheaply soon making money, so if they can do it, perhaps there is a way to grow you might not have considered. Finally, are you declaring all of your income, if not why not?
In summary, these are not the only or perhaps even best solutions but let me clarify this point. When we value your business, we multiply profit, so if you can even put £10,000 per annum onto your net profit, you could see a £40,000, a £90,000 or even more, increase in value (depending on your businesses type, style and location). Surely there are some efficiencies you can make along the way to improve your net profit? If you can’t see them then please do call us. We do offer advice to all our new clients on where to focus your efforts, although we don’t always have the answers!
Date: 12th June 2017Back to blog