Building value in business: Why it matters and how to achieve it
If your business is profitable, potential buyers should naturally be attracted to it. Building value in business may involve making strategic changes or simply uncovering existing strengths that you can promote to potential buyers. By focusing on building value, you could significantly increase the final sale price. But what exactly makes a business more valuable to a buyer? In recent years, it has been shown that many consumers become repeat customers when they perceive a business as superior to any competitor. Innovation, high quality, and exceptional customer service are just a few factors that can set a business apart from the competition.
Is building value important?
Managing a business often requires wearing many hats, particularly when it comes to the fundamentals of building value in business. This process will look different depending on your sector, but the core principle remains – strengthening your business before a sale can deliver impressive benefits. Whether through implementing changes or identifying and promoting existing value, the advantages are clear. Here are three fundamental reasons why building value is so important:
1. A higher sale price
Building value could very well lead to achieving a higher sale price. Most businesses undergo an appraisal, and the purchase price is often negotiated based on this valuation. Strategic improvements can enhance the appraised value, and if multiple parties are interested, the resulting competition can drive up the final price. Even if you decide against selling immediately, a more valuable business will likely generate higher profits, strengthening your position for a future sale. The more consistent your track record of profitability, the higher the price you could command when the time is right.
When considering the value of your business, it is helpful to view it from the buyer’s perspective. What makes your business more attractive than others? Typically, buyers look for companies that offer an easy transition and strong growth potential.
2. Differentiation from competitors
In today’s crowded markets, differentiation is key. Most businesses face fierce competition, but those that establish a distinctive identity are the ones that thrive. Think about the products and services that customers repeatedly buy from the same brand. For example, a loyal Apple customer may own an iPhone, a MacBook, and an iPad, consistently choosing Apple over competitors. Likewise, many people instinctively turn to Apple Music or Spotify for streaming needs.
When a business is seen as clearly better than its rivals, whether through product innovation, exceptional quality, or outstanding service, it attracts and retains loyal customers. This loyalty enhances the company’s value to potential buyers.
3. Consistent financial performance
If your business maintained or even grew its revenue during difficult periods, such as the COVID-19 pandemic, it immediately stands out as more valuable than many of its competitors. A company demonstrating consistent, strong financial performance is far more appealing to buyers, who will often pay a premium for a business that can weather different economic environments.
Recurring revenue models, like subscriptions, also add significant value. Take Netflix as an example: by the first quarter of 2021, it had over 207 million subscribers. Recurring revenue streams provide stability and allow companies to reinvest in innovation and customer acquisition, further strengthening their market position.
Start building value in business today
The key to success is to approach building value in business systematically, whether your aim is to grow, sell, or simply future proof your enterprise. The best time to start thinking about business value is now. Explore ways to add and highlight value within your company. With so many free resources available online, such as webinars and guides, there are plenty of opportunities to start improving today.
