If growth is a 2023 goal for your business owner clients, you can enhance the value you bring to those important relationships by helping them understand and implement different strategies for increasing their company’s valuation.

Whether your clients want to improve the valuation of their business to attract investment interest, facilitate a sale, negotiate a partnership, or for another reason entirely, they can do so in one of two ways: By increasing the absolute amount of earnings or cash flow available to the owner, or by increasing the pertinent valuation multiple. 

Increasing Absolute Earnings

  1. Increase revenue. This sounds obvious, but business owners focused on enhancing valuation should be looking to identify and pursue growth opportunities to increase revenue, including raising prices, introducing add-on products or services, and expanding into new markets. 
  2. Reduce expenses. Another way to increase absolute earnings is to reduce expenses. Business owners can cut costs by streamlining operations through technology, negotiating better rates with suppliers (or pursuing less expensive vendors), and reducing overhead expenses. Encourage your clients to continuously review their expenses to uncover potential opportunities for cost savings. 
  3. Improve efficiency. Reducing the amount of time and resources required to produce goods or services is a third way small businesses can increase absolute earnings. Business owners should evaluate, or hire a consultant to evaluate, operational processes for potential improvements, opportunities to introduce technology, and more effective employee training methods.

Increasing the Valuation Multiple

  1. Improve financial performance by increasing revenue, reducing expenses, and/or improving profitability. Demonstrating consistently strong financial performance will enhance a business’s attractiveness to potential buyers or investors.
  2. Diversify revenue streams. Businesses that rely exclusively or heavily on a single product or service risk experiencing fluctuations in their financial performance. Expanding into new markets, introducing new products or service lines, or acquiring complementary businesses can help a company decrease risk while increasing its valuation multiple.
  3. Reduce reliance on primary owner-operator. An over-reliance on the business owner for the business’s success can be detrimental to the business’s overall value. Should the owner depart or be unable to continue running the business, operations could be significantly interrupted and revenue negatively impacted. If this is the case with your business owner client, encourage them to prioritize hiring (and strategizing to retain) other key employees, systematizing and documenting critical processes and procedures, and outsourcing non-core business tasks like payroll and administration. (BizEquity’s innovative valuation software allows you to show business owners the impact their departure would have on the value of the business.)

In a nutshell, owner-operated businesses rise in value when earnings increase or the risk of garnering earnings falls. If you’re interested in more information about communicating these two earnings routes to your clients, download Chief Valuation Officer Scott Gabehart’s full whitepaper, Business Growth and Value, here.

It’s also important to remember that increasing business value is only possible if you and your clients know what the business is worth in the first place. Using BizEquity, you can run business valuations at regular intervals to help your business owner clients understand where they’re starting from, as well as the impact of any of the above changes on their valuation. Historical charting makes it easy to track financial progress and trends over time, while industry-specific key performance indicators illustrate how the business stacks up against competitors. Click here to set up a personalized demo with our team.