Adding Value to Your Business Prior to Sale, Pt. 2
In my last blog, I shared insights from James Vanderveelen of Pleasant Bay Capital Partners, on how the structure of your business and customer relationships contribute to an attractive valuation for your business. In this Part 2, I wanted to conclude by covering how the financial elements of a business impacts how valuers view a business on behalf of a potential purchaser.
- Recurring, predictable revenues – historically Cisco has been a hardware vendor, so it’s no surprise that our partners are good at selling our products. The problem is that these are irregular purchases with lengthening cycle time before customers decide to upgrade. However good your pipeline management, valuers appreciate revenue stability through the sale of value-adding services and software licenses
- Multi-year contracts – in the search for predictable, recurring revenues, it’s no surprise that valuers will view companies with a strong base of multi-year contracts as more attractive than those reliant on one-off sales to customers.
- Size of revenue and profits – whilst you may have created a fabulous boutique practice, unfortunately ‘bigger is better’ for revenue and profits when it comes to a company valuation. Bigger just means there is more of a cushion if something goes wrong once the business has changed hands. It’s the valuer’s job to be cautious on behalf of the purchaser.
- Attractive Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) margins – those partners showing healthy margins will inevitably attract a higher valuation. And how do you increase your margins? By selling high-margin services – are you noticing a theme developing here?
- Increasing margins – not only do valuers want attractive margins, they would prefer to see them increasing year on year. Controlling costs will only take you so far – I’ll give you one guess as to the other way to increase margins!
So, if you are looking to sell in the next five years, or indeed if you are looking to seek further investment into your partner business, you need to address as many of these elements as you can to increase your chances of an attractive valuation. The most important takeaway from my perspective is to work hard on growing high margin, recurring revenues – and the good news is Cisco Partner Plus has a wide range of opportunities to help you do that.
How are you using your Partner Plus benefits to grow margins and secure recurring revenues for your business?