How to increase the value of your business

Six practical ways to raise what your business is worth, in the order that usually pays off fastest, with a realistic timeline for each.

There are only two ways to raise the value of a business: increase the earnings a buyer would count, or make those earnings look safer so the multiple goes up. The best moves do both.

Quick version: clean up the books first, then work on earnings, then reduce the risks buyers discount for. Start two to three years before you might sell.

The math

Value is roughly earnings times a multiple. A business with $300,000 of earnings at a multiple of 2.5 is worth about $750,000.

Raise earnings by $50,000 and it is worth about $875,000.
Raise the multiple to 3.0 instead and it is worth about $900,000.
Do both and it is worth about $1,050,000.

Small changes to both inputs compound, which is why tracking the drivers matters more than chasing revenue.

1. Make the numbers believable

Timeline: three to six months.

Nothing else counts if a buyer does not trust your accounts. Close the books every month, reconcile the bank, separate personal expenses and keep a file of support for every adjustment. Clean books also mean you see problems while they are small.

2. Raise earnings, not just sales

Timeline: six to twelve months.

Review prices. Many small businesses have not raised prices in line with their costs.
Cost your jobs. Find the work that loses money and stop taking it or reprice it.
Cut costs that do not help you win or keep customers.

Buyers pay a multiple of earnings, so every dollar of sustainable profit you add is worth two to three dollars of value.

3. Make revenue repeat

Timeline: one to two years.

Revenue that renews is worth more than revenue you have to win again. Depending on your industry, that could mean service agreements, maintenance plans, retainers or subscriptions. Even a modest base of contracted revenue changes how a buyer sees next year.

4. Spread your customer base

Timeline: one to three years.

If one customer is a large share of sales, do not shrink that customer. Grow the others. Put your largest customers on written agreements in the meantime so the revenue is less likely to walk.

5. Make yourself less necessary

Timeline: one to three years.

Hand over customer relationships one at a time.
Write down how quoting, scheduling and billing are done.
Give a manager real authority and let them use it.

A simple test: take two weeks off without checking in. Whatever breaks is your to-do list.

6. Tidy up working capital

Timeline: three to six months.

Invoice promptly, chase overdue accounts and clear out old inventory. Faster collections put cash in your pocket now and remove an argument over the price later.

Watch what the market is doing

Your number also moves with things you do not control: what similar businesses are selling for, how many buyers are active in your industry and what it costs them to borrow. You cannot change these, but knowing them tells you whether a rise in your value came from your own work or from the market.

Measure it

You improve what you measure. Owners who see their value and its drivers every month can tell which changes worked. That is the idea behind the monthly value report: your number, what moved it and what to do next.

Common questions

How long before a sale should I start?

Two to three years is ideal. Buyers look at three years of results, so improvements need time to show up in the numbers.

What is the single fastest improvement?

Clean, timely books. It costs little, it takes months and not years, and it makes every other number more credible.

Is growing revenue the best way to add value?

Not on its own. Revenue growth that brings thinner margins or more dependence on one customer can lower value. Growth in sustainable earnings is what counts.