Business owners, whether they are owners of startup businesses or mature businesses, are always thinking about how to enhance their company’s value. Startups are particularly focused on the value of their company for capital raising purposes. One advantage a startup has over a mature business is the opportunity to adopt certain practices from day one rather than struggling, logistically and financially, to catch up years down the road. Here are ten ways an entrepreneur can enhance the value of his or her startup:
- Get your books in order – This has implications beyond business value, so begin working with a reputable business advisor from the beginning to ensure your accounting records are accurate and reliable. It’s no secret that potential investors will review your books and records, and the “cleaner” they are, the higher likelihood the investors will place a higher value on your company.
- Document business systems and procedures – Be sure to keep important records, such as original copies of shareholder agreements, stock certificates, etc., in a safe, but readily available space. It is also important to document employee job responsibilities, department procedures, organizational charts, and internal controls (it is never too early to implement strong internal controls). You do not want to have to scramble to find these documents when you’re going through a due diligence process.
- Maintain a neat, clean, up-to-date business environment – Think of this as the business’ “curb appeal.” Continually invest in your facilities to ensure all codes and safety standards are met. A potential buyer will place a lower value on a company whose facilities are in any state of disrepair.
- Effective use of technology – As with the last item, continually invest in up-to-date technology, including the company’s website and its financial information system. As the world quickly becomes more technologically and digitally driven, high value companies will be those that stay ahead of the technology curve.
- Proven business development process – Throw your support behind the company’s sales and marketing specialist(s) (and maybe, for now, that employee is you). Potential investors not only want to see a viable product, they want to see a proven sales process that can move products from the shelf to the paying customer.
- Diversify – Diversification in your customer base, vendors, suppliers, and products/services lowers the risk of the company imploding from the loss of any of these parties. Having too much reliance on one or just a few customers, for example, can cause the company great financial distress if the customer decides to use the product or services of a competitor instead of yours.
- Plan for the future – You may have in your head where you’d like to see the business in 3-5 years, but have you considered writing it down? Or better yet, writing down where you’d like to see the business in 10-15 years? Create a written strategic plan and vision, along with reasonable annual budgets or forecasts If you don’t know your companies vision and future goals, potential investors will not either.
- Depth of management – This may be the most difficult step for a startup because the owner usually ends up wearing a lot of hats. It is important, with time, to build a leadership team that is capable of making cohesive decisions that move the business in the same direction.
- Identify and overcome industry risks – Every industry has risk, though some have more inherent risk than others. It is important for the company to identify its competitive advantage in the industry and identify the forces that shape its industry’s competition. Potential investors not only expect you to know your company in-and-out, but they also expect you to know your industry and competitive landscape with the same detail.
- Grow revenues and profits – You know better than anyone else that “cash is king.” This is especially true considering the business’ value today is driven by its future cash flows, and the best way to increase cash flow is to increase revenue while reducing costs. How you choose to do that is what makes your company unique.
While many startup companies, along with their more established counterparts, focus solely on the growth of revenues and profits to increase their company’s value, there are many other non-quantitative measures they can take to increase the value. There is no secret formula as to which factors are more important than the others, so the more of these factors that can be incorporated into the business, the higher the likelihood of increasing your company’s value.
To discuss how these factors can increase the value of your startup, contact an Anders valuation expert.All Insights