Why having a scalable business is key to maximising your sale value

Can you prove your business is scalable?

When the time comes to sell your business, one of the key things a buyer will be looking for is whether your business is scalable.

And if you can prove that your business is scalable, the higher the valuation multiple and the more any potential buyer will be willing to pay you for your business.

Why?

Because your company valuation comes from your ability to reliably predict profits into the future and to prove to a potential buyer that those profits will be sustained.

Or better still, continue to grow over time. 

And this is exactly what having a scalable business does to your profits.

What does ‘Scalable’ mean?

In essence, it means that your profit margins increase as your revenues increase.

In a less scalable business, costs increase at the same rate as sales.

Clearly, a business whose profits will increase as the business grows will be more desirable to a buyer, the multiple will be higher and the more a buyer will be willing to pay for it.

Example: A less scalable business

Labour intensive businesses such as professional services firms can be more difficult to scale as the services they provide usually need to be delivered by expert individuals.

And so to bring in more revenue they need to hire more expensive people.

So, costs stay the same – or go up – in proportion to revenues.

Example: A scalable business

In contrast, software businesses are often highly scalable.

Because while the cost to build the initial software is high, additional copies of the software can be reproduced for practically zero cost. So, as revenue increases, so does profit margin.

Does this mean that only software businesses are scalable? Definitely not!

So how can you make your business appear scalable in the eyes of a buyer?

The key is to think about how you can take advantage of any economies of scale to increase your profitability as your revenues increase.

For example:

>Can you automate any of your core processes to remove any staff intensive processes – particularly your sales process, or the onboarding of new customers and staff members?

> Could you license any part of your business?

> Could you offer a subscription model?

> Could you franchise your business?

> Could you expand to new markets or geographies and replicate what you’ve done already somewhere else with much lower start-up costs?

>Can you outsource any core process to keep your internal costs down?

> Could you invest in new machinery?

As you can see, there are many ways to scale a business, even if you don’t make software!

Here’s the key point: to increase the value of your business, the buyer will want to see that you have a scalable business or have clear plans to scale in the future, and that your profits will continue to grow long after they’ve bought the business.

Start increasing the value of your business today. Download our Free 54-Page Guide: “How to Seriously Increase the Value of Your Business”

This article is taken from our free 54-Page Guide for Business Owners and Directors: How to Seriously Increase the Value of Your Business.

The guide will help you to get the sale value you want and deserve, and ensure that when the time comes to sell your business, your guts, drive, commitment and sacrifice will be worth it – literally.

You will also get a Valuation Scorecard to use in your own business to start increasing your business’s value today.

Find out more about the guide and download it here.

Alternatively, contact us today and speak to our advisors to tell us about your exit plans (in confidence) and to find out how we can help you to grow the value of your business from day 1.