Mastering the Business Chessboard: Essential Strategies for Mid-Market Companies to Boost Value and Attract Buyers

By Cheryl Powers

For a business owner or founder, the journey from inception to a profitable exit is like a masterful chess game, where strategic moves determine success. Let's begin with a story that resonates with many business owners. Imagine Sarah, who started her durable medical equipment business a decade ago. Last year, she decided to sell her business, expecting a lucrative deal given her impressive annual revenues. However, she was in for a shock when valuations came in far lower than anticipated. Why? Sarah's business, while profitable, lacked structured systems, had over-reliance on a few suppliers, and Sarah was the linchpin in customer relationships – all factors that dimmed its attractiveness to buyers.?

This tale is far too common in the business world and leads us to ponder – what makes a business more valuable?

As we step into 2024, let's look at key resolutions for mid-market business owners aiming to enhance their company's value:

?Systemize Your Operations: Taking a three-week hiatus from your business can be a revelation. It's a litmus test to evaluate how well your company functions in your absence . This step is crucial for identifying areas needing a key hire or a new system. Remember, a business less dependent on its owner is more attractive to buyers.

Document Your Processes: Aim to document at least one core process each week. This practice transforms tacit knowledge into tangible assets, making your business more scalable and sellable. Businesses with well-documented processes command higher valuations .

Diversify Your Customer Relationships: While initially beneficial, personal involvement in customer relationships can become a liability when considering a sale. Gradually offload these relationships to your team. This transition increases the business's resilience and appeal to potential buyers.

1. Expand Your Supplier Networks: Over-reliance on a limited group of suppliers is a risk. Cultivating relationships with additional suppliers mitigates this risk and demonstrates to acquirers that you have robust supply chain management.
2. Establish Recurring Revenue Streams: Companies with predictable, recurring revenue are often valued higher. This model assures future income, a critical factor in business valuation.
3. Organize Your Key Contracts: Ensuring that all critical contracts, like leases, are in order and their terms are favorable in case of a change in ownership is essential. This preparation can significantly smoothen the acquisition process.
4. Monitor Your Net Promoter Score (NPS): NPS is a powerful predictor of customer loyalty and business health. A high NPS is often a green flag for acquirers, indicating a robust, customer-centric business.
5. Evaluate your Founder Freedom Score: Understanding where your business stands today is vital for future growth . This evaluation helps pinpoint areas that need improvement to enhance your company's market value.

It's important to note that data backs these strategies. For instance, companies with high NPS scores enjoy 20-30% higher valuations than their counterparts. Similarly, businesses with diversified supplier networks and recurring revenue models are valued up to 40% higher than those without these attributes.

While setting revenue or profit goals is customary, this year, challenge yourself to go beyond. Ask yourself, "How can I enhance the intrinsic value of my business, making it not just bigger but more valuable and sale-ready? " This perspective shift could be your game-changer in the business chessboard.

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