One way of improving your business value and increasing your return on investment is to buy another similar business.

Advantages –

• Improves your profitability, your knowledge, synergistic savings will reduce overhead and running costs
• Improve your business value. A larger business will normally be sold at a larger profit multiple

For example:

A business owner runs a business with a turnover of £1milliion and makes a profit of £100,000.

He then buys a similar business which has a turnover of £1 million and makes a profit of £100,000. (He pays £200,000 for this business – 2 x multiple of profit).

By using his knowledge he identifies opportunities of reducing the combined overheads, thus increasing profitability by £30,000.

A new larger company has a turnover of £2 million and achieves a profit of £230,000 (15% improvement).

If he was to sell this larger business, he may well be able to achieve a higher multiple, let’s say 2.5

The value of their business is now £230,000 x 2.5 = £575,000 (a 43% improvement – £575,000 compared to two businesses selling for £100,000 profit x multiple of 2 x 2 businesses = £400,000).

Conclusions

• Use your knowledge to increase profitability 
• Remove duplication to reduce overheads.
• Increased profitability x increased larger company multiplier = significant growth of your asset