Valuation Multiples: How Can I Grow the Value of My Business?

Valuation Multiples: How Can I Grow the Value of My Business?

BluePrint CPAs helps entrepreneurs in Windsor-Essex, London, Hamilton and Toronto grow their businesses and ensure that staff are well trained and engaged to maximize the financial value of their business.  

Business owners want to get the most value for their business when they sell, but less than 40% have had a valuation done in the last three years and 65% have never had their finances
audited.  

In our recent blog post,
Selling a Business: How Can I Grow the Value of My Business?”, we discussed how to build internal processes and capabilities to increase the value of your business upon sale.  

Today, we discuss other factors that contribute to the growth of your business. Specifically, how to build capabilities within your business to increase the valuation multiple upon sale.  

“Growth is never by mere chance; it is the result of forces working together.”— James Cash Penney

What is a Valuation Multiple?

A valuation multiple is a value that multiplies your corporate profits to determine the value for your business. While multiples are typically determined in the negotiation process, there are certain factors that play a key role in determining your valuation multiple and the value of your business.  

Below are some questions that contribute to the valuation multiple and can play a key role in growing the value of your business.  

What Is My Competitive Advantage?

Building a competitive advantage is one of the most important factors in growing a business.  Understanding what your competitive advantage is, is a crucial step in your business’ growth.  

A competitive advantage is the factor or factors that make your business unique from its competitors. Competitive advantages can come in many forms, some examples could be unique technology, a strong brand, or a product/service that is hard for your competitors to replicate.  

Having a competitive advantage is important for the growth of your business because it creates a reason for new customers to want to purchase your product/service and it gives them a reason to stay. Having a competitive advantage adds value to your business because it is a deciding factor in your target customers’ purchasing decision.  

Note: Your competitive advantage should not be solely based on lower prices than your competitors. This strategy is difficult and unlikely to result in a growth strategy for your business.  More likely, this strategy will result in extremely thin margins and make it unlikely for you to have the capital to invest in growth.

How Do I Build Stable Revenues?

Stable revenues are another important factor that contribute to your company’s valuation multiple. Factors that can help to contribute to more stable revenues include diversifying your product offerings and managing your customer retention rate.  

While offering a different product or service may not be possible for your business, improving your customer retention rate is something that any business can work on. Understanding what your current customer retention rate is and setting a goal to improve it is an important first step in building stable revenues for your business.  

How Will My Business Grow in the Future?

Considering your business growth and where it will come from is important for your business’ growth strategy and contributes to your valuation multiple. Having a future growth plan that is supported by a solid business strategy will help you to grow your business and increase its value.

Is My Business In A Position to Scale Up?

How dependent is your business operations on one person? Evaluating your business processes, technology and workflows is essential in determining the future growth potential of your organization. By incorporating standard operating procedures and using tools to manage workflows within your organization, you are setting up your organization to scale much faster in the future.  

If your business is in a position to grow and is not dependent on you as a business owner for its growth, it will be more appealing for potential buyers and contribute to an increased valuation multiple.  

What Are The Costs of Capital For My Business?

How much does it cost you to finance your business? Understanding the cost of capital and how it affects your company’s valuation will help you assess your business. Examples of capital costs include equipment costs, intangibles, facilities, hardware purchases and more.  

Businesses with strong revenue and earnings growth potential tend to have lower costs of capital. Asset intensive businesses can also access higher amounts of debt financing and reduce their overall cost of capital.    

What Is A Healthy Amount of Debt for My Business?

How much debt can your business take on? Understanding this is essential in determining the value of your business. If your business can take on debt to finance its operations, you will have a higher valuation multiple. This is because the cost of borrowing will typically be lower than spending equity. Understanding how much healthy debt your business can take on is important in determining the value of your business and will contribute to its future growth.

What Is The Current State of The Economy?

In asking yourself this question, you must look at the current state of the economy and your industry. There are many factors to consider when making this assessment. Is the economy doing well? If so, is this still true for your industry? Are there potential buyers in your industry or is there an abundance of businesses looking for a buyer?

Understanding the current market is essential in determining if it is the right time to sell your business and how it will affect your business’ value.  

“Focusing on the customer makes a company more resilient.” — Jeff Bezos, Amazon

How Do I Sell My Business?

The first step in assessing if your business is ready for sale is understanding the internal and external factors mentioned above. While these are all great starting points, each business is unique and the ways in which you approach increasing your business’ value may differ. While the considerations listed above contribute to your valuation multiple, the multiple is typically determined in the negotiations of your deal.  

To find out if your business is ready for sale, you must find the right advisors. BluePrint CPAs works with entrepreneurs who are looking to grow their business in Windsor-Essex, Chatham-Kent, London, Hamilton and Toronto. If you’re looking to grow the value of your business before a sale, book a consultation today.  

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Rebecca Scott
Web Designer

Rebecca is a Web Designer at BluePrint CPAs. She is a graduate of St. Clair College’s Internet Applications and Web Development Program and has worked as a freelance web designer before joining the BluePrint team.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Kit Moore, BluePrint CPAs President & Lead Tax Advisor
Kit Moore, CPA, CA
President & Lead Tax Advisor

Kit Moore, is an entrepreneur that simplifies digital strategy for other business owners. The team at BluePrint CPAs can assist you with web design, development, analytics, management systems and, more importantly, your overall business strategy. The toughest part of digital transformation is re-training your team - and we have pros to help with that as well.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Kit Moore, BluePrint CPAs President & Lead Tax Advisor
Kit Moore, CPA, CA
President & Lead Tax Advisor

Kit Moore, is an entrepreneur that simplifies tax and financial strategy for other business owners. The team at BluePrint CPAs can assist you with financial technology, tax strategies, mergers & acquisitions, succession & exit planning and, more importantly, your overall business strategy.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Joe Marra, MBA
Senior Associate, Strategy Consulting

Joe is a Senior Associate, Strategy Consulting at BluePrint CPAs. He is a recent graduate of the MBA Program at the Schulich School of Business and has most recently worked for Bayer Inc and the Ford Motor Company of Canada. His experience in marketing, sales, and human resources spans various industries including hospitality, logistics, life sciences and automotive manufacturing. Joe loves working with entrepreneurs to develop their digital strategies and help them grow their business.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

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Valuation Multiples: How Can I Grow the Value of My Business?