An enormous amount of content is published on buying and selling businesses. Today I’d like to focus on one of the areas of building your exit strategy that should concern every business owner – how to increase it’s valuation.
Most of us know that a rule of thumb for valuing a business is using a multiple of EBITDA (Earnings Before Income taxes, Interest, Depreciation and Amortization). Using this formula, there are only two ways to increase valuation – a higher multiple and/or more earnings. While there are many factors in increasing earnings, and we help owners work on these every day, how do you increase your multiple?
Derek van der Plaat, an M&A advisor with Veracap M&A International in Toronto, published an interesting article on some of the factors that you can influence to increase your multiple. He explains that while the mechanics and success of the sale process itself are important, there are many factors that owners can influence as they grow their companies. He focuses on making the owner redundant (strong management team), diversifying the customer base and building recurring revenues. While the article is a little scholarly, it’s not long and worth a read here.
We at B2B CFO® use our proprietary B2B Exit® software to help owners identify, and more importantly, put them in control of a proven process to improve their multiples. If you’d like to learn more, check our website or give me a call!