The Key Factors Owners Should Focus On to Build a Better Business
While it’s tempting to think that the value of your business is solely determined by your profits, there’s a much more strategic equation that owners should focus on to build long-term value. Simply put, profit alone doesn’t tell the whole story; what matters most is the multiple of your profit that an acquirer is willing to pay for your business.
Most business owners instinctively try to increase their business value by increasing profits. To achieve this, they may focus on selling more, dedicating increasing amounts of time on calls, on the road, and in face-to-face meetings with clients. While this can lead to some short-term growth, it often results in an unsustainable cycle: the owner becomes the bottleneck, working longer hours, burning out, and stretching personal and business resources thin. As this cycle continues, revenue may plateau, personal health and relationships can suffer, and the overall business value stagnates. This all-too-familiar scenario underscores the fact that focusing on profits alone may actually hinder the growth of your business’s value.
To unlock the long-term potential of your business, it’s essential to shift focus from just profit to improving the factors that drive the multiple of that profit—the other key number in the equation. By focusing on increasing your company’s multiple, you can build a more valuable business, improve your profitability, and regain your freedom as a business owner.
What Drives Your Multiple?
1. Differentiated Market Position
Acquirers seek businesses that are hard to replicate. If your company occupies a unique position in the market, with few competitors or exclusive access to products or services, you’ll command a higher multiple. A market niche that you can dominate—or even near-monopoly status—drives up your business’s appeal to potential buyers.
2. Long-Term Growth Potential
A common misconception among founders is that achieving market share is the ultimate goal. However, acquirers often see market saturation as a limiting factor that can reduce your company’s value. Instead, what they’re looking for is “runway”—opportunity for future growth. If your business still has plenty of room to scale and expand, it’s more attractive to acquirers because it promises long-term profitability.
3. Recurring Revenue
One of the biggest concerns for potential buyers is what will happen once the owner exits. Businesses with strong, predictable, recurring revenue streams provide assurance that the company will continue to thrive without the founder’s day-to-day involvement. Subscription models, long-term contracts, and repeat customers all contribute to a reliable income base, significantly boosting the business’s value.
4. Solid Financials
It goes without saying that acquirers will scrutinise your financials. Beyond size and profitability, however, they will also assess the quality and transparency of your financial reporting. Clean, organised financials that reflect the true state of your business not only increase trust with potential buyers but also demonstrate your business’s operational health.
The You Factor: Building Independence
The most valuable businesses are those that can operate independently of the owner. While the business may have started with you at the helm, the true strength lies in creating a company that can thrive without your constant involvement. By focusing on processes, systems, and teams that can take over the operational responsibilities, you build a business that isn’t tied to any one person, making it far more attractive to acquirers and increasing its overall value.
In the end, rather than pouring all your energy into boosting profits, focus on improving the factors that will elevate your company’s multiple. By building a business that is differentiated, scalable, financially sound, and capable of running independently of you, you’ll not only improve its value but also create a more sustainable, less stressful business in the long run.
If you have any questions about this article or would like to speak to one of our advisors about how you can improve your business, please do not hesitate to contact us or call our office on (08) 6212 7200.