How does the age of your business impact the value of your business?

Why does this have an impact on the value of your business?

Again we come back to risk, the higher the risk or perceived risk then the lower the value and the lower the risk the higher the value, which is quite logical when you look at it. Based on any research you will do and according to Michael Gerber from the e-myth revisited more than 80% of businesses will go broke on the first 5 years and 80% of the survivors will not survive the second five years.

Less than 5 years old.

you cant change the age of your business but being aware of the risk factors you can prepare your business to be at the top of the list of potential purchases for a buyer, but start now to do your preparation and not when you are about to list it for sale then its a bit late. By making many other areas I have listed to prepare for then you can lessen the impact of age. Start by creating a business plan for the company and its future less than 10% of businesses have a business plan. It doesnt need to be elaborate and the easiest way to start is to buy a business plan software and look at some examples then get started.

5-10 Years of age 

So you have survived the first 5 years congratulations.. your business  is in a more stable range and if you combine the second 5 years with increased staff levels then you must have some at least reasonable systems in place. So again create the business plan as advised above but add another level and also create a marketing plan, by having these tools in place you will focus a potential buyer on the short to medium and even long term vision you have for the business and how to get there even with a different driver at the wheel.

10 Plus years old.

Great work you have surpassed 10 years old even more stable a business this by itself adds value so when you go to sell the business be sure not to underestimate this factor. Combine this with the above 2 suggestions of a Business plan and a marketing plan then ensure that you update those on a yearly basis all business change and the markets change over time. Also focus this with the amount of management levels you have within the business. The more management levels the more stable and more value this will add to the business.

In summary regardless of the age there are 3 types of businesses one that is increasing its sales and profit each year for the last 3 to 5 years, the second is a company that has sales and profit that is wavering increasing each year so sales and profit is up and down year on year. The 3rd type of business is declining each year for the last 3 to 5 years. Which one would you rather buy? and the value of the one that is increasing each year will be higher and in more demand than the other 2 types. so why not start now and prepare you business for sale in all respects regardless of if you intend to sell Tomorrow or in 10 years time. The worst thing that can happen by working on these topics is that you strengthen you business and make more profit in the interim.