Many people think the majority of value in their business is tied to revenue only so they tend to undervalue their worth when it comes time to sell. Most of the valuation formulas deal strictly with revenue as well. However, many CEO's (including yours truly) have felt they left "too much on the table" when it was time to sell their business or negotiate a deal because they didn't take many other factors into consideration.
This is also an important issue when it's time to attract investors or put together strategic alliances. The more you learn about how to value every aspect of your business, the more bargaining power you have when it come time to negotiate. There are dozens of ways to build value in your business and I discuss many of these in our customers. Here are a few that will help you negotiate higher fees, attract investors, bigger deals, and ultimately sell for a premium price.
1. Intellectual property (IP)
Take inventory of not only your patents, trademarks, copyrights, and trade secrets, but also brand identity, websites, domain names, blogs, and social network profiles. You can create as much IP as you want and the more you do with them, the more valuable it becomes.
2. Tangible assets
What else do you own that is attached to your business? This includes real estate, inventory, collectibles, and so forth. I remember years ago a friend sold his business including the building it came with. In the final purchase contract, his broker forgot to exclude the access to the new solar project that was attached to the building that ended up saving an extra $11,000 per month in utility savings and revenue. Although the property associated with the solar power plant didn't convey, the building's participation in the program did and therefore it was automatically conveyed to the new owner and my friend literally gave up that revenue because of this oversight. Ouch!
3. Contracts and other agreements
You may have agreements that could be tied to current or future revenue, produce residual revenue or allow for something of value other then direct revenue. Could be the use of an image, name, access to a resource, etc. During the time I sold my first business, we had several existing contracts to provide services to a major real estate broker. The contract was engaged after we hired the business broker and specified one year of service with four optional additional years built in and our broker missed this costing us over $25,000 in valuation in the final purchase price just for the first year of service. If you're doing business with people right now without a written agreement, consider putting one in place ASAP, and if you are working with a broker, always bring maintain communications effectively, especially as you get closer to the sale.
4. Customer or Subscriber list
Your list is golden and would be coveted by many! It can be a tremendous bargaining chip in a sale or partnership negotiation. The people on your list may not all be customers but have the potential to be which translates into revenue. The Net-Teams Community and Contact Management System allows you to load your contacts, search through them by name, business name, email, state or zip code, keep private notes on each contact and set up a next date of contact - the key functionality you need to develop relationships.
5. eWorkshops and eCommerce Systems
You're adding value anytime you've created backend infrastructure in sales, marketing, operations or production. Any systematized process that automates your business online makes it more valuable. eWorkshops are a great way to create a subscription-based recurring revenue model and up sell process for your higher priced products and services. Take a look at the eWorkshop Publishing site for how this actually works.
6. Building Your Team
Relationships are important and can be used as a bargaining chip in many negotiations. Includes your advisors, producers, creatives, sales stars, as well as who’s in your “golden rolodex”.
7. Branding
What is your name worth to you? Have you been involved in community outreach? Featured in the media? Your reputation, good name and the credibility of your business can increase your value.
8. Access to capital and other resources
Do you have access to resources you may not have fully utilized yet but could be considered a valuable asset to someone that wants to do business with you.
9. Aged corporation
Age before beauty applies here! The longer your company has been in existence, the easier it is to establish business lines of credit…and take advantage of other perks. Often times, a younger company may buy an existing shell of a company for this very reason.
10. Ability to create new Intellectual Property
If you have patents, trademarks or other intellectual property that hasn’t been fully expressed or developed, the potential of its development may be worth more than you know. Case in point if you own a PC, how many versions of Windows have you purchased since you’ve had your first computer?
I hope you have found this information useful. Feel free to contact us directly with your questions.
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(c) 2009 by Article Advocates
Last Updated Jun 11, 2010
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