The value of your company is partly determined by your industry. E.g cloud-based software companies are generally worth a lot more than printing companies .
But, when we look at businesses in the same sector, there can be major differences in valuation. Below are 8 factors that can really make a difference.
1. Recurring Revenue
The more income a business has from automatically recurring contracts or subscriptions, the more valuable the business will be to a buyer. Even if subscriptions are unusual in the sector, if a business can find a form of recurring revenue it will make it much more valuable than its competitors.
2. Something Special
Buyers want what they cannot easily replicate on their own, so developing a unique product or service that is difficult to compete against makes a business more valuable than one that sells the same commodity as everyone else in their industry.
It’s summer holiday time, and although it may seem strange, now may be the perfect time to take steps to increasing the value of your business.
In a job, you get fired for taking too much holiday, whereas if you own a company, the more holiday you can take without impacting your company’s performance, the more valuable your business will be.
The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that runs itself, while a business that is dependent on its owner should expect much lower offers
This summer, consider taking an extended break from your business to see how things will run when you’re not around. It’s likely that some things will go wrong, but use those errors as the base for making your business operate more independently of you – and therefore more valuable.
Here is a five-step plan for profiting from your time off this summer:
The ultimate test of your business can be found in a simple question: would someone want to buy your company?
Whether you want to sell next year or a decade from now, you must be building an asset someone would buy – otherwise, you have a job, not a business.
Here are eight ways to ensure you are building a company, not just doing a job:
Facebook has recently acquired Internet messaging service WhatsApp for £11.4 billion. It represents the largest-ever acquisition of an Internet company in history.
WhatsApp is a certainly a great product. I know because my youngest is travelling in Australia and uses it extensively. The messaging service allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or who live in emerging markets, hundreds of pounds a year, which is why WhatsApp is adding one million new users per day.
At the time of the acquisition in February 2014, WhatsApp had acquired some 450 million users. Their business model is to charge a subscription of £6 per year after their first full year of service. Even if all 450 million WhatsApp users were already paying, that is still not much more than a quarter of a billion in turnover. Why would Facebook acquire WhatsApp for a number that is over 40 times turnover?
We don’t know for certain but we can only assume that at least part of the opportunity Facebook sees is the opportunity to sell more Facebook ads because of the information they glean from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around £300 billion. Presumably Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.
And therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry standards, but a strategic buyer can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth today, a strategic buyer is calculating the economic benefit of grafting your business onto theirs.
There can be many strategic reasons why a big company might want to buy yours. Here are a few to consider with some big company examples;
The 2014 Edelman Trust Barometer, which focusses on levels of public trust around the world, has just been published. Its key findings include that (with the exception of Asia) family owned businesses are THE most trusted, outpacing other SMEs and private companies, ‘big business’ and state-owned businesses.
This report follows an earlier one by the Institute for Family Businesses (IFA) which suggests a number of reasons why family firms are not just popular with consumers: businesses buyers are particularly keen on them, too. Why?
Closely linked reasons for popularity
The IFA report found that family-firm owner managers run businesses with an eye to the long-term. They are much better at continuing to invest during recessions and take more modest salaries and dividends, preferring to reinvest instead. They also command greater staff loyalty. These factors help family businesses to build strength in depth – and develop the high levels of trust revealed by the Edelman survey.
For many, the new year is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.
Some people will set personal goals like losing weight or stopping smoking, and most business owners will set goals that focus on hitting certain turnover or profit targets. But if your goal is to own a more valuable business in 2014, you may want to make one of the following resolutions: Continue reading