No, a business doesn’t always become more valuable by increasing sales and revenue. Although it’s crucial, income isn’t everything when a business valuation process takes place. A buyer will look into factors like your initial investment, return on investment through the years, staff members, size, geographical location, assets you have acquired, liabilities, equity shares, stakeholders’ ownership, etc. These factors are generally assessed by investment bankers and venture capitalists when they show interest in buying your company. Most often, people know this and focus on these aspects only, which may work. You, as a business owner, can improve the fundamental operations and highlights of your business to make it seem more attractive; however, the real value of an enterprise consists of other vital factors too, which are often ignored.
So, if you are planning an exit strategy for your retirement or looking for funding and want to increase your business’s worth, the first thing to do is consult an outsourced CPA in North San Antonio. They will help you organize your records, assess your financials and taxes, and direct you toward the right methods to calculate your company’s market value.
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The Factors That You Can Focus on to Make Your Business More Valuable:
Certain characteristics derail or increase a company’s worth in the eyes of the investment banker, buyer, or venture capitalist. Investors do not always focus solely on the revenue model, income, taxes, and compliance while investing in a company; they try to forecast the future value of a business. Below are some key factors that you can oversee and alter to increase the market value of your company:
- Second-Tier Management: This is a digital era; businesses are trying to integrate automated systems into their operations and customer relationships. But technology cannot always lead a group of people; that’s where your managers come in. Without senior management, holding a company together becomes challenging and requires a lot of work. Let’s say you cannot leave the company even for a day or a week because you have to manage and handle everything by yourself, then that means your business is entirely reliant on you. A buyer will see it as too much work with less return and more investment. Nobody wants to invest in a company where the owner is the business. So, hire talented people in your team who can take the heat of the work in your absence.
- Recurring Revenue Streams: A business that has a stable revenue model, meaning repeat contracts and subscriptions that can help gain recurring revenue, is the holy grail in the eyes of investors and buyers. These models need substantial work and targeted marketing; Netflix, Amazon Prime, and Microsoft are prime examples. If you, by any chance, can develop a necessary product, service, or software that needs a refill every month, then your business’s bank account will be loaded. This is what makes a business truly valuable. Not just investors, but public and private companies would also want to invest in your company if you go for an IPO.
- Efficient and Accurate Accounting Systems: Now, when there’s finance, there’s a need for an accountant. If you are a startup handling all the accounting work by yourself; then you are exposing yourself to unmanageable money, transactions, cash flow, and financial risk. Accounting isn’t just about taxes and bookkeeping; it needs thorough analysis and groundwork to maintain standard compliance. If you are going out looking for a rich investor without having a rigid accounting system, you are doomed. No one would want to take the risk of investing in a company that hasn’t managed its clients’ accounts and paperwork promptly. Moreover, it will escalate the situation towards hefty penalties in case of an IRS audit.