Enhance your company’s corporate value to increase profitability

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Most people in the US don’t jump right into a dream home — I know I didn’t. Instead, they usually start with something modest and gradually work their way up. When they are ready to sell, they look to make improvements and add value to the property to maximize their return. Likewise, if you’re planning to sell your business, the smart move is to work intentionally to enhance the value of the company – its enterprise value.

Enterprise value is the total value of your business. However, owners should remember that there are some deductions from this number that arise from debt and transaction costs such as legal advisers and business brokers. This reminds me of selling my first house, then seeing how much it sold for and all sorts of different people getting a piece.

Many business owners do not engage in improving corporate value as deeply as they should. This is because they are more comfortable with organizational tasks in which they have some experience. But if you want to create the most value for yourself, your team and brand legacy, you have a responsibility to I get comfortable. The good news is that you can consciously increase company value if you understand it.

Related: Let the other side win if you want to negotiate a truly great business deal

How to increase business value

Like many organizational projects, increasing enterprise value requires good planning. But no plan works if you don’t know what you really want. So start by setting a clear expectation. That might mean selling in five years and trying to get the business to $1 million or $100 million.

Once you have these parameters, ask yourself, “How are we going to get to this goal?” You’ll realize what a big bite to chew on increasing value and closing a sale, and that’s normal. There are performance documents to compile (usually based on 12 months of transmission), reviews to receive, marketing, negotiations and other jobs involved. This is a big reason why 54% of realtors say you should allow six to 11 months to complete a sale.

You’ll also need to find your valuation range, which usually requires relying on a financial measure such as earnings before interest, taxes, depreciation and amortization (EBITDA). Hire professionals to look at the dynamics around your business, such as size and industry. They can then find some ‘comparables’ or ‘compressors’ which are companies similar to yours and find out what they sold for. Each competition price is expressed as a multiple of your financial measure, such as five times EBITDA. By looking at the low and high prices of your benchmarks, you’ll discover a range of where your company could likely sell. This scenario is like your real estate agent telling you what similar homes in your neighborhood have sold for.

As you develop this profile for your industry, identify what each company has that contributes to its value. In a home sale, you may see factors like finished basements, proximity to transit, or energy-efficient appliances provide an advantage. For companies, competitive value-enhancing factors could be dedicated staff, intellectual property, or the number of strong brands within the business. Can you bring any of these guides to your own business? If so, you might be able to push your company to the higher end of the valuation range.

Keep in mind as you look at value drivers that not everyone will see them the same way. A pool can be a negative if you are buying a home and have small children running around in the backyard. However, if you envision your family relaxing in that pool every summer, suddenly it’s a plus. Therefore, it is important in selling your company to know what type of buyer is attracted to certain factors and to highlight or create the factors that attract the type of buyer you want to sell to.

Related: How to maximize your company’s value through marketing

Get ready to grow

In many cases, when a company goes through the above process, it realizes that in order to sell on the time frame it wants, at the price point it wants, it needs to change some of its plans or ways of operating. The latter often means choosing to grow faster at a faster pace. How you grow will depend on your culture and resources, but may include options such as investing in sales and marketing.

In the age of social media, improving your online presence can be a great way to add value and grow. Your website and social media channels provide opportunities to deliver a higher “wow” factor that leaves people impressed and eager to engage with you. Statistics support the idea that social success matters. 77% of consumers will choose a brand over a competitor if they have a positive experience with that brand on social media, and 91% of executives expect their company’s social media marketing budget to grow over the next three years. So make sure your online channels reflect the same experience people have with you face-to-face.

When setting a growth goal, remember that small percentages can fool you into thinking there isn’t much of a difference — 5% may not feel that far from 8%. But when you apply a higher rate for a few consecutive years, by comparison, it can translate into millions of dollars more in added value.

When you’re getting ready to sell, reducing your tolerance for things that don’t add to the company becomes more important, so you end up with the highest possible growth and ultimate valuation. Ultimately, this reduced tolerance should translate into improvements in the way the company is run.

Related: 5 ways to create value from your intellectual property

Creating corporate value supports everyone

Many homeowners who don’t plan well before selling their home end up trying to make improvements that they should have implemented well in advance. They never end up being able to really enjoy any of these improvements and instead walk through the sale frustrated and stressed.

Don’t make their mistake. By trying to create additional corporate value well in advance of exiting your business, you will retain more control over your options and they have the opportunity to feel the satisfaction of everything together. More importantly, it will help you think more critically about how you manage and then improve your leadership. Because this grows both you and the business, it’s a win-win.

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