Takeaway: Purchase price is predicated on current and historical cash flows, but a well thought out growth plan will increase the attractiveness and price of a business.

Potential buyers who are considering the purchase of a business are interested in knowing how it can be grown once they bought it. The growth potential of a business plays a major role in its value. While buyers will purchase a business at a price predicated on current and historical cash flows, their main motivation is the opportunity to grow the business beyond its current size.

Therefore, in order to get a premium price on the sale of a business, the seller should outline a tactical growth plan that would delineate open opportunities that can be tackled and exploited by a buyer to increase sales and profit. It is important that existing growth opportunities be realistic and clearly communicated in writing. This document could serve as a template for discussion during initial buyer meetings. It would cohesively paint the larger picture of your business and translate into added value.

Design a Growth Plan

When an owner can describe realistic opportunities for growth that specifically illustrate the reasons why cash flow and profitability will grow after the business is acquired, a buyer’s perspective on return on investment may appreciate and translate into higher value. A documented growth plan demonstrates the viability of the company’s future and may identify opportunities that a buyer had not considered. The obvious objective in outlining your growth strategy is to show how sales can be increased. Some areas to consider in developing a growth plan:

  • Are there additional markets that a new owner should pursue?
  • What additional products could be delivered to existing customers?
  • Are there products or services that can be offered to generate recurring revenue?
  • Where are the best profit margins realized and can they be expanded?
  • Can new customer segments be reached?
  • Can your technology be licensed?
  • Will demand for your product or service increase as population grows?
  • How will enhanced marketing campaigns and sales efforts affect growth?
  • Are there opportunities to grow through acquisition?
  • Can growth be achieved by expanding geographically, increasing manufacturing capacity, or adding multiple locations?
  • Would additional hires impact growth? Or, would streamlining the workforce be more beneficial?
  • Is franchising feasible?
  • Are there online strategies ripe for growth?
  • Are there areas to explore that could decrease operating costs that you have not implemented?
  • Would the company benefit through additional workforce training and education?
  • Are there industry changes ahead that can be capitalized on to give your company a competitive advantage?

The above list is not meant to be all-inclusive, but touches on the key areas that are common to most businesses for potential areas of growth.

Read more about top ten drivers of business value:
Master Ten Value Drivers to Sell Your Business at the Highest Price