Agreement as a Strategic Value Driver to Maximize Company Valuation At Exit
If you’re thinking about selling your company, don’t overlook the power of contracts and agreements. They can boost your company’s worth. Having solid, long-term deals with customers not only brings in steady income but also makes your profits look even better. Plus, having agreements with your suppliers at fixed prices for your materials ensures that you can keep making your products at a profit and meet customer needs. It’s all about the confidence that comes with having these agreements in place; it makes your business more valuable to potential buyers.
Customer Contracts
Getting contracts with customers isn’t always a walk in the park, but they can seriously boost the value of your business. Having a solid contract in place means you’ve got a steady stream of income that lets your company plan for the future and grow. Some potential buyers love seeing these contracts, while others see them as a nice-to-have but not a deal-breaker. Even if not having contracts does not eliminate your chances of selling, it may reduce the overall value of your company.
One important thing to think about with customer contracts is whether you can pass them on to the person buying your business. Some contracts can’t be handed over because the customer specifically made them with your company. So, you might need to have a chat with those customers who have non-transferable contracts and ask if they’d be okay with assigning it to the new owner. It might feel a bit awkward, but it’s necessary to make sure the buyer gets what they paid for. Typically, you’d only take this step when you’re pretty sure the deal is going to go through.
Supplier Contracts
The kind of business you’re running plays a big role in whether you’ve got contracts with your suppliers. In some fields, like distribution, having contracts is a game-changer for growing your business. In other areas, they might not be a deal-breaker but still bring a lot of value. Securing your source of raw materials or other products and locking in their costs can help your business thrive and make more money. Especially if you’re dealing with precious metals whose prices can be all over the place, having a stable supply and fixed pricing becomes super important. You want to be careful with price swings because they could mess with what you charge and your profit margins. If the stuff you use tends to change in price a lot, it’s worth looking into strategies like hedging to lock in prices and give yourself some predictability in costs.
Growing your business’s value comes in various forms, but a particularly effective strategy involves securing contracts and agreements with both customers and suppliers. The appeal for potential buyers lies in the assurance of stable revenue and predictable costs, creating an environment conducive to growth and profitability. With these contracts in place, the multiplier applied to your purchase price increases, leading to a more substantial payoff when you decide to sell. Do not worry if your industry is not used to these agreements; instead, shift your focus to cultivating a diverse customer and supplier base, a strategy that also increases your company’s overall worth.
Sources:
https://pixabay.com/photos/document-agreement-documents-sign-428334/
https://www.pcecompanies.com/resources/how-contracts-and-agreements-enhance-your-company-value