How to Increase the Value of your Company: Scalable Businesses
As we know, there are numerous ways to increase the value of your business, this post will discuss key information regarding how buyers are willing to pay more for businesses with growth potential, also known as a scalable business.
Overall, American industry grows around the same rate as the economy grows, which is roughly about 2-3%. Of course, with newer businesses in which have a lower sales volume it is easier to see a higher growth percentage than larger, more established businesses. In addition, less than 2% of our companies grow by 20% or more per year for 3 consecutive years.
Scaling a business looks at the capability of the company to handle an increased amount of work or output. An owner needs to ask themselves “do I need increased resources to raise sales?” and if so, “how can I minimize these costs of growth?”.
Oftentimes, when buyers and/or investors want information regarding the growth potential of a business and at what rate the business is capable of growing, regularly they are talking about how they can increase revenue.
Unfortunately, many fail to ask how the business can achieve linear profit margin growth while avoiding substantial cost increases. Similarly, in addition to considering how to achieve growth while avoiding substantial cost increases, you should also ask yourself if you can grow your business by increasing the services provided to your existing customer base or by duplicating the model in another market.
It should be noted, buyers also consider the capability of the existing people, processes, and equipment that are included in the company while factoring in the growth potential of the business.
To close, I want to leave you with the understanding that strategic buyers may see an opportunity to create a synergy between companies by purchasing a business in a space they are interested in with good growth opportunities, even though there may not be many of the other value drivers in place.
Check out our correlating video: