The Ultimate Benefits of a Business Broker
Building business value is different from building personal values. It involves many complicated elements that are not easily understood. For instance, customers are likely paying more for a business perceived to have more value in terms of revenue growth, internal processes, and customer relationships. A business broker is quite important especially to a novice buyer.
What is a business valuation?
Business valuation can be defined as the process of assessing the value of a business. In other words, it is what the buyer is willing to pay. There are various ways of determining business value. The value of a business can be ascertained by the book value of the asset, revenue growth, internal systems, technology, and retention rate and customer relationships. These factors influence what the buyer will pay.
Most public companies have a common goal of maximizing their value stock which is similar to maximizing business value. The goal gives these companies foundation onto which decisions are made and evaluated. Most private companies do not focus on value maximization, but financial experts indicate they should. In fact, every business should adopt value maximization as the integral strategy.
Whereas public companies use enterprise value to evaluate the performance of the management, private companies should use business value to assess how the managers are performing. By setting value maximization as the main goal in the business, the entrepreneur provides a clear direction. This makes the business less dependent on the owner and more on the managers and therefore increasing business value. The value of the business is likely to increase when risks are reduced. Below are certain principles that can help increase the overall value of a business:
A business does not need to be growing rapidly to achieve top value. Experts indicate that too fast growth can sometimes be too dangerous for a business. This is because there is no business that can sustain very fast growth for a long time. Additionally, due to rapid growth, a business may not be able to focus on current growth. In fact, rapid growth can negatively impact earnings of a company. Growth above average is the best growth a business can sustain and maintain because it is easily manageable and still reflects good prospects for the business. A business claim considerable value if, for example, it has a growth rate of ten percent in an industry with a growth rate of ten percent. Apart from maintaining an average growth, it is also important to remain consistency. The following strategies can help to develop growth that maximizes value.
Sales and marketing
Sales and marketing should be made a culture of the company. Employees should be involved in the growth agenda of the business. For instance, managers should provide employees with information and tools that will enable them to make more revenue and thereby improve value. Everyone in the business contributes to the expenses of the company even if is through wages. In the same way, everyone should participate in making a successful revenue plan. For example, every time an employee makes contact with a customer, it is an opportunity for revenue growth. The result can be fatal if the employee is not empowered.
Although targeting big prospects can provide numerous opportunities for huge growth rate, too much time is lost while success is unpredictable. However, maintaining regular customers can help maintain a sustainable growth. On the other hand, adding one customer at a time can be the best way of creating a sustainable sales system.
Most budgets focus more on expense items instead of revenues. It is advisable to develop a budget and revenue plan that provides the pathway for achieving growth targets. This plan can also help to measure the success of the business.
Culture of growth
Culture in the business is created through communication and action. The management should develop sustainable growth agendas and communicate constantly and anyway possible to the employees. Also, a system of rewarding exemplary performance should be developed. This will make everyone in the business focus on increasing productivity which results in growth.
Earnings Before Interest, Taxes, Depreciation, and Allocations (EBITDA) has become the free cash flow (CFC) for most businesses. Free cash flow is defined as the measure of the financial health of a company. Capitalizing on the cash flows can be a good way of developing the value of a business. In fact, most valuations methods utilize free cash flow in business valuation. Taking full advantage of the free cash flow helps to make the business more efficient.
Developing efficiency inside the business is not similar to reducing cost. In reality, it is the opposite where cutting cost as the only strategy for improving cash flow can considerably stifle productivity. Conversely, an improvement in productivity causes the cost to reduce. Putting all the focus on cost reduction provide gains in the short run but lose of value in the long run. However, focusing on productivity improvement provide a positive impact in the long term. The only way of realizing the increased long-term value in the business is by reducing cost in more efficient ways.
Creating efficiency in the business, which translates to more value, involves improvement of the internal processes, empowering employees and applying technology.
Improvement of internal processes
Developing a sufficient process improvement plan is one of the most essential ways of improving business value. Although all business has the opportunity to improve their internal processes, very few do. The best way to implement an improvement plan is through the 80/20 rule. In order to gain maximum success in the implementation, there should be measurable and specific goals. It advisable to constantly measure successes against these set goals.
In most cases, employees are treated as primary assets of the business. If employees were machines, they could have been improved regularly. Employers should approach their employees with a similar mentality that they frequently require attention, maintenance and upgrade. This can be done by providing training, incentives many other ways of improving employees’ welfare.
Technology can have a significant influence on the value of the business. Involving technology that is scalable and serve the intended purpose in business operations considerable improve the value. Technology is rapidly changing and it is therefore important to keep up with the latest information.
Customers are a major part of any business and can considerably impact the value of the business. Customers that are not loyal or not committed may negatively affect the value of a business. However, improving relationship with customers can be a great way of increasing the value of a business. Following are few ways of improving customer relations.
Improve customer retention
Customer retention is the ability of the business to preserve and maintain customers. It is an important metric for determining the performance of management. Focusing on the improvement of customer retention can be helpful in improving the value of the business. Each customer should bring profits to the business. Understanding the profits each customer makes also helps in sales decision making and ensuring longer and sustainable relationships.
Review the sales process
Sales processes lead customers to their preferred products or services. Poor sales processes, for example, unreliable payments procedures can have a negative impact on the customer retention rate. Therefore improving the sale process can greatly enhance the value of the business.
As a business broker, I help businesses in the various buying and selling processes. I can be of great help whenever you need to sell a business. Although there are numerous business brokers in South Florida, I guarantee the best services at the most effective cost. Contact me for help and tips on how to sell a business among other services.