There are many ways to increase the value of your company. As we discussed before, for the most part “buyers buy cash flow.” Therefore, the best way to increase the value of your company is to increase the quality and amount of your sustainable cash flow (one-time gimmicks or accounting tricks will be quickly seen through). There are no silver bullets for improving cash flow, but focusing on lead generation, conversion rate, average dollar sales, retention/repeat sales rate, and margin are great places to start (often referred to as “The Five Ways”). Other important factors that impact the quality of the cash flow include the predictability of the cash flow, contractual customer and vendor agreements, counterparty strength and relative negotiating strength of customers and vendors, customer concentration, potential growth, and quality and depth of the management team (i.e., does the business revolve around and depend on the owner or the company as an institution?). Intellectual property may have a standalone value, but reputation, fixed assets, inventory, etc. are generally considered as required to generate the cash flow and are not ascribed a separate value.
Next: “How can I increase the purchase price of my company?”
