When it comes to increasing the value of a small business, focusing on top-line growth won’t give you the whole picture. Revenue alone doesn’t always equal value, and a bigger business isn’t always a better one. If your long-term goal is to build a valuable business with options for your eventual exit plan, here’s what you need to know.
Focus on Fundamentals
Growth looks good on paper, but without the right foundation, a business isn’t actually valuable. What truly builds value is a combination of profitability, liquidity, and operational efficiency.
- Profitability: You’re earning real income after expenses – proof that your business model actually works. High revenue with razor-thin margins won’t attract serious buyers.
- Liquidity: You have cash on hand to meet obligations and weather storms. Strong liquidity shows potential buyers and lenders that your business can handle surprises. It also gives you flexibility to invest in growth opportunities.
- Efficiency: You’re using your people, systems, and resources well. If your team is constantly putting out fires or if you’re stuck doing everything yourself, your business isn’t running efficiently. Inefficiency cuts into profits, increases burnout, and lowers the value of your business.
Together, these create a business that’s financially healthy and attractive to potential buyers.
Know Your Margins
To increase your business’s value, you need to know your true margins. Not just on the macro level. You should be tracking each project, service, or product. And it’s not enough to know your numbers in isolation. How do they compare to industry benchmarks? Potential buyers will want to know how your margins compare to competitors. This gives you negotiating power when it’s time to sell.
Build a Business That Can Run Without You
One of the biggest red flags for buyers is a business that falls apart when the owner steps away. If everything depends on your decisions and your moves, the business isn’t really transferable. To increase value, build a team you trust, define roles clearly, document your processes, and establish systems for day-to-day operations.
Keep Clean Books
Potential buyers want transparency, so be prepared to show accurate and current financials. If you want to sell someday, or even just know your business’s true value, you’ll need:
- Three years of clean financial statements
- Properly categorized income and expenses
- Clean records – no blending of personal and business transactions
Good accounting isn’t just about taxes. Messy books create doubt. This can weaken your negotiating power and ultimately lower your sale price.
Think Like a Buyer, Plan Like a Seller
It might seem counterintuitive, especially for startups and young companies, but the most valuable businesses are built with an exit strategy in mind. The choices you make now should move you toward a profitable and transferable company. Whether you decide to sell, step back, or pass on, focusing on strong fundamentals creates real value and sets you up for a better future.
