Increasing your company valuation

Aug 11, 2017 Alison Strategy 0 comments

As financial analysts Plimsoll have identified 458 forwarders as acquisition targets, we thought we should show you how to improve the non-financial areas that shape the offer the buyer will make for your business.

The press, in the last week, have reported that XPO Logistics has ‘billions to spend’ on acquisitions and financial analysts Plimsoll have drawn up a list of 458 forwarders that they believe would make an attractive target.

Many of these ‘targets’ will be stunned and disappointed when confronted with the price that XPO Logistics – or another buyer – are willing to pay for their business.

While the starting point for any business valuation will be multiples of accounting staples, like net profit or EBITDA, this valuation is no more than a base measure for the potential buyer and the only way you will really know what you are worth is when they put their offer on the table.

Those offers will be driven as much by the buyers perception of your business as they will be by your financials.

The good news is that with any offer so strongly linked to perceived value you can take action now to boost your value and support current business performance.

Follow these recommendations, or as many as you can, to increase the value of your business in the future and revenue performance in the short-term.

1. Embrace effective marketing
2. Create recurring revenue streams
3. Diversify your client base
4. Develop niche products
5. Demonstrate strong management
6. Eliminate dependencies
7. Scalability

1. Effective marketing

Effective marketing activity, good branding and credible growth plans provide confidence that you know where the business is going and how it is getting there.

A track record of growing market share and generating cash not only validates your quality, but also demonstrates your ability to drive growth.

Buyers pay more when they believe that there is a higher likelihood of future growth.

Historic results are equally important because they provide a good indication of what is possible.

2. Create recurring revenue streams

Long-term contracts are the best guarantee, but these are notoriously rare in the forwarding sector, so it will be your most established customers instead.

Customer retention is critical, so check out my blog posts on customer loyalty activity.

Retainers for outsourced services, or through a subscription service for software services are also valuable.

Educate your people to not accept one-time-purchases and instead upsell and actively doxycycline online cheap seek repeat purchase.

3. Diversified but targeted client base

Buyers will expect 80% of your revenue to come from 20% of customers (or thereabouts), but they will be very wary if the 20% are in the same vertical, because any downturn will be devastating.

They will also be wary if revenue is not spread so, for example, one customer representing 30% or more of your revenue will be considered risky by most potential buyers.

Diversification is key. So develop a presence in one vertical and move onto another, replicating and adapting the activity that worked to accelerate market penetration.

4. Develop niche products

Buyers particularly like acquisitions that are active in niche markets.

Because you are a specialist focused on specific target market needs, it acts as a barrier to other providers, protecting the market share your buyer is looking to acquire.

There are other compelling reasons to penetrate a niche, which is why I will do a separate blog on finding your niche in a week or two.

  • It’s easier to target potential clients
  • You will be seen as the go-to expert
  • You could be the big fish in a small pond
  • Marketing is easier because there is less ‘noise’
  • Repeat business and client retention is simplified

5. Strong management

A well-trained, knowledgeable and motivated management team is what buyers want to see.

Buyers will be wary if it appears that any individuals or the owner make all the decisions or are relied on too much.

While keeping the previous owner involved in the business is not unusual, buyers will still want reassurance that you are able to leave the business for extended periods, without negative impact on performance.

6. Eliminate business dependencies

Every business has many dependencies that hold them back.

Identify and counter any that are hampering you.

You will need to consider every major element of your business including; your tech, recruitment, attracting new customers, processes AND marketing.

Outsourcing non-core competencies may help reduce dependancy.

7. Scalability

Processes are what keep your business moving. Documenting and refining these processes will give you the opportunity to refine them and your company the ability to grow much more quickly.

Scalable, measurable and repeatable processes make it easier and less expensive to hire and train employees and better service customers.

They also reassure a buyer that the engine for continued performance is firing on all cylinders.

Related Posts

Leave a Comment!

You must be logged in to post a comment.