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OPINION

Valuation Secrets: 7 Steps to Maximize Business Value

By Mun Siong Yoong on August 27, 2021, 9:00 AM

Fund raising is a major challenge for business leaders. Your business valuation is what investors think your business is worth.

Add investor judgement to the complexity of the M&A process and emotions involved, and it is understandable why business leaders want to maximize the value of the business they’ve put so much time and energy into building.

The higher your business valuation, the less equity you give up. High business valuations are often a result of advanced planning and focused strategy. Professional advice helps ensure you get it right.

Here are seven (7) secrets to help you maximize your business valuation.

 

Seek Advice

You should work with an experienced entrepreneur who advises to prepare your business for sale from day one. This includes having an expert valuation and a growth strategy plan done.

Even if you don’t need to raise funds today, building your business with a view to sell will change the way you build your business. Ask yourself, “What attracts investors to the businesses they buy?” The better you can answer this question, the higher your business valuation.

Secret 1: When you build your business to sell, you attract a higher valuation.

 

Assemble A High Performing Team

Investors do not just back products or services, they back the team. Does your team have domain expertise and a track record for leadership in your industry? Are they known to customers, suppliers, partners and lenders? How much capital have they raised in the last 2 years? Be sure that you have a bankable team before you approach the bank.

Secret 2: Success attracts capital that increases business value.

 

Differentiate

A business only has two goals: find and keep a customer. Stand out from the crowd so that customers choose you, and not the competition. It is important to highlight what differentiates you from the competition. When customers understand and buy, it shows up as cash flow. Even if investors don’t understand your business model, they know this – cash flow wins.

Secret 3: Cash flow increases when you differentiate.

 

Demonstrate Traction

The best way to demonstrate traction is to show escalating revenues. When sales increases, it is irrefutable proof that customers not only understand your business, but they are also voting with their wallets.

How do you know you have a good business model? If you explain your product or service and the prospects says, “That’s a very nice product!” you have failed. Instead, you want your prospect to say, “That’s incredible! How do I buy some?” The proof is in the sale. The sale is the only thing that matters.

Secret 4: Sales is how you demonstrate business traction.

 

 

Lower Costs

Business is a game of margin, not volume. Business value is defined not by what sales you create, but by what profits you keep. Analyse your operations and look for ways to increase efficiency, reduce overhead and generate a higher return on cost.

Proven ways to cut costs and enhance profit margins include:

  1. Reimage business from a resource ownership to a resource subscription model;
  2. Embrace new technology;
  3. Reduce infrastructure costs;
  4. Redesign for a contactless economy;
  5. Automate where possible; and
  6. Digitize so employees spend more time creating value rather than collecting and transcribing data.

Secret 5: Business value is defined not by the sales you create. It is defined by the profits you keep.

 

Start A System

The difference between a profitable vs unprofitable business over the long term is the ability to close sales consistently.

You read a book from start to finish. You run a profitable business the opposite way. You start from the end and do everything you must to reach it. Then you find out how you can repeat your path to profitability consistently.

The aim is to make repeatable processes part of the daily routine for not just the founders, but for everyone that works in the business. Having a repeatable process aligns expectations and collaboration between team members, ensures consistency of customer experience, reinforces delivery of your brand’s promise and with that increases sales and cash flows.

Secret 6: Predictable sales and cash flows increases business value automatically.

 

Hit Milestones Out of The Ballpark

The surest way to reduce your business valuation is to miss your milestones and promises. Investors pay for performance, not excuses.

Once you have identified important milestones that impact business value and what investors are willing to pay, work backwards to build a timeline and budget. Then execute ruthlessly.

For both time and money, it is important to under promise and over deliver. Fund raising always takes more time and money than you expect. If you miss your milestones, not only does your business valuation decrease, it is also much harder to attract investors.

Secret 7: When you achieve milestones, you increase business value and attract investors.

 

 

Valuation Services

What else can you do to boost business value in the shortest time possible? You may request valuation services if you are looking for:

  1. Asset Impairment Testing
  2. Business Valuation
  3. Financial Instrument Valuation
  4. Financial Modelling & Audit
  5. Intangible Asset Valuation
  6. Portfolio Company Investment Valuation
  7. Purchase Price Allocation
  8. Share-based Payment Valuation

Contact VALLARIS to start a conversation.

 

Who Does VALLARIS Advise?

VALLARIS advises ‘EMERGE 1010’ businesses: This means you:

  1. Are a business gaining prominence (‘EMERGE’);
  2. Achieved no less than $10 million revenue in the last twelve months (’10’); and
  3. Aim to complete a deal or resolve a dispute worth at least than $10 million (’10’).

If that describes you, please contact us to start a conversation.