The market for selling or investing in your small business has changed since April 2022 when the public bull stock market collapsed. For the companies that I sell, values have gone from 7- 17 times sales to 3-7 times sales. Now these buyers and investors are no longer valuing just growth at any cost.
Here is what they want: (PRPG)
Profit
For 2023, profit is king. Profit and positive cash flow gives the company time to get and retain more customers. It also means that a buyer or investor will not have to invest money right away to cover losses. For every small business, know what your gross margin is (the higher the better), and which products, services and customers are most profitable to your company.
Retention
Customer retention in this market is key since it is more expensive to acquire news ones that to keep what you have. It also shows that customers will pay for your product of service over the long term; this is what investors and buyers want to find their comfort. Know what both your net and gross retention rates are. It is also a key measure of the scalability of your business.
Proof
While retention does show that “your product works”, investors and buyers may be looking for independent studies to back this claim up. Short of that, documented case studies on quantitative results helps.
Growth
Growth is still valued if it can be done profitably. When there is a bull market, companies are told to grow despite losses, but that’s not the case for 2023. Do not grow rapidly if it will produce losses; it requires additional outside capital which is in short supply in 2023.
You may be thinking, “if I had all four of these, I wouldn’t need an investor or a buyer!”; Exactly, the market this year is placing a high value on companies that do not need to sell or do not need outside investment.