How to maximize business valuation🤑
As an investor or entrepreneur, some strategic and tactical decisions can greatly impact your financial returns
In business (and life), we can allocate tremendous amounts of resources - energy, money, time- in activities that will yield great, or not so great, returns. As a general rule, similar level of inputs can generate very different outputs. Very often luck, environment and timing are the main reasons one focuses on one thing versus another (assuming similar level of passion). However, some deliberate strategic and tactical decisions can maximize your business valuation and financial returns.
For an investment of $19/month or $190/year, you can access valuable insights, every week, on how to increase your financial returns. A pretty smart investment decision! 💸
It is important than before thinking about exiting and monetizing a business (most often, way before), entrepreneurs, investors, and board members put some thoughts on how to maximize returns. By focusing on activities and attributes that drive the highest valuation multiples, you can ensure that you will get the best financial outcome. After all, it takes a lot of work and risk to launch and invest in companies, you want to make the most of it!
Today, I will share with you some of the most important lessons I learnt.
🤑 Geographical footprint: Not all geography are born equal when it comes to business valuation. Where companies offer their products and services will impact a great deal their success, which makes a lot of sense. A B2C Fintech will have more opportunities to grow in a large market, with less regulation, and open competition (such as The U. S.) than in the opposite (such as Canada). The mistake I often see is companies selling in the same geography than their business location, even if it is an “unwelcoming” market. Asset Direct understood very well this dynamic. Despite the organization being based in North-America, India & Brazil are where their market expansion is happening, in alignment with the value-proposition of their offering. 👉 What is the best geography for your offering, regardless of your business location?
🤑 Regulatory advantage: In the same vein than geographical footprint, some markets will be more amenable to success thanks to local regulations. Impak Finance is the leader in impact scoring for asset managers. Instead of primarily selling its SAAS platform across the globe (or even North-America where it is based), the company has been focusing on France where regulations require from asset managers to take into consideration a company’s impact in their investment decisions. 👉 Are you making the most of the regulatory environment, from a top and bottom lines perspective?
🤑 Clients’ size, industries, locations: All else being equal (overall top line, bottom line, margins, revenue diversification), higher multiples are allocated to large renowned clients in attractive industries and geographies. Even if there is no hard and fast rule in terms of premium, it is the case. You can justify this in multiple ways; 1) it shows the ability to sell to complex highly sought-after organizations and markets, 2) it gives the opportunity to land and expand, 3) large clients operating in high-margin industries are more likely to be LT profitable clients, 4) investors recognize brand names, 5) investors like to invest in geographies they know well (usually their own). 👉 Can you “upgrade” your clients?
The above focuses on strategic positioning that must happen way before even thinking of monetizing the business (more insights on key strategic decisions to maximize business valuation behind the pay wall). The goal being to maximize the output with similar level of inputs.
From a more tactical perspective, some activities will facilitate an attractive exit.
🤑 Audited statements: Having a couple of years of audited statements by a solid audit firm will be necessary for any appealing exit. Not only does it “prove” your numbers, it also show your commitment to having your financials in order. Don’t make the mistake to clean up your financials and hire auditors once you decide that you want to exit the business, this is way too late. 👉 Just do it!
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