5 steps to a higher valuation for small- to mid-sized companies

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Just like when your neighbor sells their house — which is comparable to yours — for double what you paid, most business owners in the small- to mid-sized market know of a company similar to theirs that sold for a valuation that was high.

What makes these businesses so special that they can sell for many times the value of a competitor?

Studies have shown there are certain factors that drive premium valuations. Many leaders think the primary driver for high valuation is strong financials, so they focus on measures like cutting costs and propping up short-term revenues.

However, many acquirers and investment professionals do not prioritize financials as the leading factor for growth investments. While a company’s potential must not be contradicted by its financials, current earnings do not constitute the last word on future growth.

Companies that can show consistent, strategic growth are ones that are well positioned to command the best valuations. But most companies in the small- to mid-market range are focused on tightening up and maintaining their operations and financials. While those are important, any company seeking premium valuation has to have strong potential for profitability and revenue growth.

This means concentrated effort must be focused on revenue generation activities that lay the foundation for growth. For small- to mid-sized businesses, here are five steps to strengthening your business’ future revenue expectations, preparing you for a higher valuation:

1. Secure your current revenue base. Make sure your relationships with your best customers are solid. If you need help getting started, reflect on the top 100 reasons your company is in business.
2. Diversify your customer base. If more than 15 percent of your revenues are concentrated with any one client, start developing a plan right now to reduce that ratio by acquiring new customers.
3. Examine your sales team and pipeline. Is your sales team focused on finding new, long-term customers? Or is the team maintaining current customers and finding short-term sales? Or is your company so financially comfortable that the sales team doesn’t have a desire to aggressively seek new customers?
4. Check your company’s visuals and marketing materials. How do they compare to your strongest competitors or the market leaders? Have you been taking the legacy reputation of your product or services for granted as the driver for new sales because business has been “good enough”?
5. Make a great first impression. A prospective customer should be inspired by their first impression of your company — inspired to find out more and moved to action by what they discover. Your company’s image is just as important to invest in and maintain as your physical facilities and operations.