It takes careful analysis to identify and strengthen the business valuation multiples that lead to improved long term performance

Once you or your business appraiser has completed the valuation of your business, unless you are succeeding beyond your wildest dreams your first response will be, “How can I increase the value of my business?” or “How can I grow my business“. If you are selling a business you want the highest possible price; if you are looking for a business loan you need to ensure that your business will have no problem paying off debt. However, you cannot simply sell more product overnight; you need to analyse your business by its component parts and increase your business valuation multiples. What are business multiples? In simple terms, they are the active factors that can compound the fair market value (FMV) of your company. They influence your business valuation according to this simple formula:

Profit x Multiple = Valuation

For example, if your company is valued at £50 million, by strengthening your brand recognition (one of the key factors), you may increase the FMV of your company to £55 million because in the years ahead the stronger brand name will translate into an increase in revenue.

What elements are linked to the multiples? Here are the key ones:

1. Do you have a replicable business model? This refers to the size of your enterprise and its market share. Can your market share be increased by moving into new markets, or by more effectively selling within your established market?

2. How do you access the market? For example, Paul Mitchell hair-care products are sold only in professional hair salons, not in retail stores. This is a conscious decision made by the company to preserve brand value and put the products in an environment that creates a sense of exclusivity.

3. Your brand should have value that has been created over years of customer loyalty. You can increase your brand valuation multiple through long-term consistency and quality. Conversely, you can damage your brand through poor performance.

4. If you have a strong brand in one market, why not introduce the brand in a different market? The New York real estate tycoon Donald Trump has done this successfully; you can golf on a Trump golf course whilst sipping Trump water, and then retire to your Trump condo to read a Trump book whilst wearing your Trump necktie.

5. Is your product one-size-fits-all? Or do you offer variations to satisfy niche markets? In the old days, for example, everyone took the same vitamin supplement. Now the market bulges with endless variations aimed at women, men, teens, children, senior citizens (all those “silver“ vitamins), and more. For vitamin manufacturers, this business valuation multiple has increased exponentially.

6. Your business valuation multiples can also be boosted by strengthening your internal operations. Is your workforce healthy and motivated? Are they well-trained? Is your software up to date, and are your facilities energy-efficient?

Who buys your product or service? Are you selling to a market that has disposable income? Is your operation lean, or is there waste?

Increasing revenue and profits is rarely a matter of simply commanding your sales staff to sell more; it takes careful analysis to identify and strengthen the business valuation multiples that lead to improved long-term performance.

To discover how Incisive Edge will increase the value of your company email growth@incisive-edge.com or call 0843 289 7884.