Management teams are busy. Complex, unforeseen issues arise daily, demanding time, resources, and energy. Long-term goals and strategy also play into everyday business. However, equally as important as current income and daily functions, is formalized planning designed to increase the market value of the business.
Below, we explore three areas of where focused management teams can bolster market value and provide future capital gains for investors.
Diversify Your Customer Base
Businesses often make the mistake of chasing high volume, marginally profitable customers or even becoming dependent on a single customer relationship. Customer concentrations result in stunted profit margins, ultimately reducing the company’s marketability and market value.
Concentrating on one or two large customers or a single market produces unnecessary risk, warning potential buyers of long-term financial instability. Buyers seek companies with a diversified customer base, with no single client representing more than 8-10% of total revenue. Single end markets or a few large customers are red flags, ultimately resulting in reduced market value.
Management teams must proactively diversify the customer base by size, industry, number, and geographic location.
Develop Recurring Revenue
A continuous source of revenue is an obvious indicator of market value. Starting every month, quarter, or year with a high percentage of targeted revenue already in the pipeline is a great business model.
In pursuit of top line growth, businesses can overlook the existing customer base. Acquiring new customers is important for a growing company; however, maintaining current relationships with a client base accelerates growth and enhances profitability.
Pursue and enhance techniques to increase recurring revenue and prevent competitors from undermining your customer base. We’ve listed a few key strategies below:
- Prioritize customer retention
- Provide persuasive customer value propositions
- Exceed delivery dates
- Continuously innovate
- Exceed quality expectations
- Be the most convenient option
- Exceed customer service expectations
- Provide creative offers
Multiple streams of recurring revenue reduces risk, increases the predictability of earnings, and generates a premium valuation for the company.
Demonstrate Growth Potential
Demonstrating a growth story with realistic potential is attractive to prospective buyers. Both a recent track record of growth with explainable cause and future growth opportunity are crucial for investors to understand about your company. Potential buyers look for scalability along with revenue growth potential. The ability to support revenue growth without significant capital expenditures is a value driver.
Flynn & Company: CPAs and Business Consultants
Flynn & Company is a full service accounting firm, dedicated to helping our clients achieve greater bottom line profits with innovative & practical solutions. Our business valuations provide businesses with an insightful tool, applicable to many situations throughout the life of a company, including purchase or sale, financing, divorce, gifting or discounts, equity infusion, and many more.
At Flynn & Company, we are dedicated to providing you with a unique grouping of personalized service and proficient experience. Contact us today at (513) 530-9200 or via our online form to begin a conversation with our team!