Business Value Drivers: 20 Ways to Boost Your Exit Valuation 

In this post, we’ll talk about the business value drivers that can enable you to build a wildly valuable company that leads to a lucrative exit.

Whether you are looking to sell in the near future or not, this is critically important. The best businesses are sellable at any moment, so you should build your company to be sold even you have no intention of cashing out anytime soon.

Even if you never sell your company, you’ll get to manage a company that with greater profitability that’s significantly easier to manage than it is today.

Business Value Drivers to Boost Your Exit Valuation

1. Position to Sell Far in Advance

Even if you have no intention of selling, it’s never too early to identify potential buyers. Begin with the end in mind.

Most business owners and entrepreneurs never take the time to do this, which is one contributing reason why 90% of businesses never sell.

I want you to put together a list of at least three to five potential buyers and think through the reasons why they should acquire you.

I recommend making this a top priority instead of letting it slip. How do you want to position your business to these potential buyers? And which M&A advisors will you assemble to help you?

How will this positioning drive your strategy going forward? Keep the end in mind and let this dictate the vision for your business.

2. Owner Not Critical in Day to Day Operations

When your business can run entirely without you, you have a valuable asset.

One of the biggest mistakes business owners make is to design a business that relies too heavily on them.

If you are the rainmaker who makes your business successful, you are in big trouble. Once you leave, potential buyers will have major hesitations that the business can continue without coming to a screeching halt.

Here’s a test: you should be able to leave for six months (with no communication) and have business run as usual. Nothing can be dependent on you.

If you can’t do this, you will take a major hit on your potential sales price.

3. Develop a World Class Management Team

You want to build your core lead team to be leaders, not doers.

Instead of just looking for team members who can perform tasks and follow directions, how can recruit a management team that will lead, take accountability, and take initiative to solve problems?

Here are five key roles you should aim to get the absolute best talent you can:

• CEO: responsible for gross sales (top line revenue)
• Marketing: responsible for bringing in quality leads through various acquisition channels
• Sales: responsible for converting business
• Customer Satisfaction: responsible for creating raving fans and increasing lifetime customer value. Most business owners are hyper-focused on bringing in customers, but the ultra-successful place a priority on existing customers, where the big money is.
• Finance: responsible for net profit and challenging the team to keep the P&L front and center

4. Reliable and Consistent KPIs

Think about core metrics and tracking you can create for the following:

• How do you drive traffic?
• How do you attract leads and build your prospect list?
• What is your conversion mechanism to drive sales?
• How do you ensure customers are happy?
• What is your systematic referral engine?
• How do you sell customers after the initial sale?

You should be able to show consistent, detailed metrics for each category, which will create a lot of confidence that your success is predictable and will continue after the sale. If you can do this, you’ll be able to earn much more with the sale.

5. Well Defined Sales Process: Repeatable Way to Acquire Customers

One of the most important things you can do to increase your company’s value is to develop a process for acquiring customers that is reliable and predictable.

In a lot of situations, businesses don’t really have a solid acquisition process for getting new customers. They don’t know how to get customers, it just kind of happens. If you don’t have a repeatable or reliable way of acquiring customers, you will be penalized severely on price (if buyers are interested at all).

This should be a finely tuned process:

• How many leads/prospects does it take in your pipeline to turn into one sale?
• For each dollar in to advertising, it results in X in customers and $___ ROI

When you have a system in place that consistently generates new business, it becomes much easier to scale and inspire confidence in buyers.

6. Eliminate Single Channel Dependence

If you currently only rely on one marketing channel to acquire customers, this is a potential deal killer.

The most dangerous number in any business is one. If this single marketing channel stops working, it could cripple you.

As an example, if 95% of your revenue is generated from Google Ads, this is something you want to address immediately. A slight change in their ranking algorithm could have a disastrous effect on your business overnight.

Try to eliminate any dependencies your business has on third parties and look to expand to other marketing channels (i.e. outbound sales calls, direct mail). Ideally, it’s best to be able to prove you have multiple acquisition channels consistently bringing in customers.

7. High Customer Lifetime Value with Low Customer Churn

Do all you can to maximize customer lifetime value (CLV) and reduce customer churn.

CLV is the total amount of revenue that a customer will generate for your business over the course of their relationship with you.

To increase CLV, you want to focus on two things:

1. selling additional products and services to your existing customer base, and

2. increasing the average transaction size.

Strong customer retention (low churn) shows that your company is stable and has a loyal customer base. Buyers will want to see you have a proven track record of keeping customers happy.

8. Create Recurring Revenue

Recurring revenue is the holy grail of business valuation. A recurring revenue model is one in which customers make regular, ongoing payments for access to your product or service, and can increase your valuation by 8X.

If you can develop a stream of recurring revenue, you will be able to command a much higher price for your business.

What in your business can you charge for in a recurring way?

A few ideas:

• Sell subscriptions to your product or service
• Offer maintenance or support contracts
• Provide financing, payment plans, and leasing options 
• Ongoing memberships

9. Obsess over Financial Statement Accuracy

If you overemphasize any area, make it accounting. While it’s not overly exciting, this is the one area where you want to be absolutely perfect.

Your financial statements are the foundation that your business valuation is built on, so it’s important to get them right. This means having a complete and accurate picture of your revenue, expenses, assets, and liabilities.

You should also make sure your financial statements are up to date, as buyers will typically be very interested in the last 12-24 months of financial data.

Finally, you should have your financial statements prepared by a certified public accountant (CPA) or other qualified professional.

10. Thorough Documentation and Standard Operating Procedures

As a business owner, you want to make sure your company is running as efficiently and effectively as possible. This means having detailed documentation of all processes and procedures so that anyone can pick up where you left off.

Aim to have your team capture every task they do consistently (exactly what to do at every step).

You want to have extreme detail into how every workflow happens to remove any sort of key person dependency risk.

11. Institute a Quarterly Documentation Day

Documentation is so important I’m going to create another category for it.

I recommend having your entire team spend one day per quarter documenting everything they do repetitively (especially tasks that started recently).

Create a process flow, down to very simple steps. If they handed it off someone else, make sure they could perform the task without any questions.

Pay the most attention to documentation for the following areas:

• Legal
• Employees (including well-defined roles and job descriptions, org chart, HR procedures, employee reviews and development)
• Corporate records
• Written agreements with vendors, partners, suppliers, etc.
• Customer contracts
• Sales
• Marketing

While this sounds incredibly mundane, ensure your entire team is used to documenting everything they do. If you don’t, you’ll have major headaches when you go to sell. 

12. Promote Your Business to Ideal Buyers

One major mistake I see is that business owners don’t promote their business nearly enough to potential buyers.

Remember that this a volume game: to get the best price, you’ll want to cast out a wide net of potential buyers. More options gives you leverage and a higher likelihood of getting what you want.

While you can work with a broker or use your network to get the word out, remember that closing your deal is your job. Don’t abdicate this process completely to a broker.

Be strategic about who you promote your business to: focus on buyers who will pay the most for your business. This means targeting strategic buyers, private equity firms, and larger businesses in your industry.

13. Specialize (Don’t Generalize)

If you want to stand out, you can’t be all things to all people. If you focus on doing one thing incredibly well, you’ll be able to differentiate yourself from your competitors and command higher prices.

As John Warrillow says, this specialism should be ‘teachable’, ‘valuable’ and ‘repeatable’.

By specializing, can become the go-to company in your field, which makes it much easier to sell.

14. Strong Management Succession Plan 

A succession plan ensures that there is a continuous pipeline of talent available to take over after you leave the company.

You’ll need a strong management team in place who can continue to grow the business without you.

If you can get your high performers committed to staying onboard, it will go a long way. Think about offering them a long-term incentive plan that rewards their personal performance and loyalty.

Instead of using stock options, it’s simpler to offer a “stay bonus” that provides members of your management team with a cash reward if you sell.

15. Develop a Compelling Growth Story

It’s critical to have a strong growth story around what the future upside opportunities are after the sale. Put together a multi-year scaling plan that paints a picture for what’s possible.

What headroom is available? What is the untapped total addressable market?

How could the business get there? What sales channels or growth strategies haven’t been tapped into yet?

Your buyer isn’t buying your business for what it is today, they are buying it for what it could be in the future. You want to be able to articulate strategies around how you could potentially 10X the business.

The more believable your story is, the more valuable your business will become.

16. Supplier Diversification

By now, you’re probably noticing a theme: don’t put all your eggs in one basket.

Having multiple suppliers for each key input is important to mitigating supplier risk.

You don’t want to be in a position where a single supplier can hold you hostage or force you to accept unfavorable terms.

By having multiple suppliers, you can pit them against each other to get the best terms and quality.

17. Keep Your Eye on the Ball: Look to Boost Profits

One of the most obvious—and effective—ways to increase your company’s value is by increasing your bottom line.

A higher profit margin will not only make your business more attractive, but it will also give you more negotiating power and leverage when it comes time to actually sell the business.

Continue to invest in what’s most important and don’t get distracted with shiny objects and daydreaming about a potential exit.

If you can show that your business is consistently profitable and on a growth trajectory, you’ll be in a position of strength when you sell.

18. Brand Equity and Intellectual Property

If you have a recognizable brand or some intellectual property, this will make your company much more valuable.

A brand can be a strong differentiator, and intellectual property can provide a barrier to entry for competitors.

19. Reduce Customer Concentration Issues

The more diversified your customer base is, the less risk there is for the buyer.

If a single large client makes up a significant portion of your revenue, if they were to leave it would have a catastrophic impact on the business.

A simple rule of thumb: ensure no one client makes up more than 15 percent of your revenue

You want to show that you have lots of happy customers, and that no single customer is too important.

By diversifying your customer base, you also make your business less susceptible to economic downturns and other risks. 

20. Sustainable Competitive Advantage

Creating a ‘competitive moat’ can increase the value of the business, making it more attractive to potential buyers. What makes you unique and stand out in the market?

Some common ways to develop a competitive advantage include:

• Having a unique product or service offering
• Proprietary technology or processes

• Delivering superior value
• Strong economies of scale
• Highly skilled and experienced management team

Conclusion

As you can see from this post, there are a wide range of value drivers that can impact how much someone is willing to pay for your business.

Selling a business is no easy task, and it frankly preparing for it is a lot of boring work. But it’s worth it. If you enjoyed this, you might want to check out my 32 step checklist for selling your business.

Remember, the key is to start preparing early, so you can maximize the value of your business and make this process as smooth as possible.

Do you have any other tips on how to boost a company’s exit valuation? Share them in the comments below, I’d love to hear from you.