Last Updated Nov 9, 2010 1:48 PM EST
Most businesses are valued on a multiple of earnings, so your profits are one key factor in driving up the value of your company, but the other number in the equation is the multiple of your earnings used to arrive at a price. The more predictable and exciting your business, the higher a multiple you'll get.
Here are 9 things you can do to increase the multiple your business attracts:
1. Redefine your market to be a first-place product
Acquirers like to buy companies with market-leading products and services. Narrow your market so you can claim market leadership. For example, instead of defining yourself as another restaurant, be the "best vegan eatery in Santa Fe"; instead of being a landscaping company, be the "best caretaker of exotic flowers in the Pacific Northwest."
2. Implement contracts with survivor clauses
Move as many customers as you can to long-term written contracts that will survive a change in company ownership.
3. Diversify your customers
How can you reduce your reliance on a handful of big customers?
4. Work toward steady profit-margin growth
Can you increase prices or reduce costs to improve your profit margin? Acquirers like to see an increase in your margin, which is often a sign that you have something unique in the market.
5. Give managers real responsibility
If there's a recurring situation in your business that drives your managers to turn to you for advice, it's time to focus on how you can train them to handle that problem by themselves.
6. Build a team full of "A"s
You don't want employee turnover leading up to the sale of your company, so the time is now to replace anyone you don't see as a long-term fit.
7. Upgrade and update your website
When potential acquirers develop an interest in your business, the first thing they will do is google your site.
8. Develop a predictable, recurring revenue stream
Potential buyers want to know your business will continue to make them money. A subscription offer or long-term contract model are two ways of achieving this.
9. Lock in key managers with golden handcuffs
Lock in your managers with some sort of long-term incentive plan that ties them to your business after the sale of your company. Here's a template you can use.
In addition to growing revenue and profit, what else are you doing in 2011 to increase the value of your business?
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John Warrillow is the author of Built to Sell: Turn Your Business into One You Can Sell. He has started and exited four companies and was named one of America's most influential marketers by BtoB Magazine in 2008. Think you can sell your business? Take the Sellability Index Quiz. Follow him on Twitter @JohnWarrillow Become a fan on Facebook