Over the last couple of months, we have been working with some of our clients to increase their profit and the value of their businesses. While the questions are simple, the mechanics to implement are not as simple.
The three questions to increase the value of your business by 30% or more are:
- What can you implement to increase your revenue by 5% this year?
- What can you implement to decrease your cost of goods sold by 5% this year?
- What can you implement to decrease your overhead by 5% this year?
Many businesses are focused on generating current income/profit and have forgotten about increasing the value of their business. A business is a transferrable asset and is usually the most valuable asset of a business owner. A business is typically sold for a multiple of its earnings, and increasing earnings exponentially increases the value of the business.
As an example, a business generating $500,000 in earnings and could be sold for 5X earnings – that would put the value of the business at $2,500,000. Let’s say sales were increased by 5% and the costs were decreased by 5%. As a result, earnings were increased to $800,000, making the business worth $4,000,000.
As you can see, small tweaks can have a large impact on the value of your business. There are a multitude of qualitative factors that also affect the value (which I didn’t get into in this article), but focusing on these three ways can produce measurable results.