The 3 Biggest Factors That Maximize Your Business's Valuation Why the right people, assets and revenue predictions will matter most to investors.

By Daniel Priestley

Opinions expressed by Entrepreneur contributors are their own.

Diane Labombarbe | Getty Images

Many entrepreneurs dream of selling their business one day for a life-changing sum of money. In the shorter term, they may want to raise money from investors and get the best possible valuation to reduce the amount they dilute their own ownership. There are dozens of way to calculate a credible valuation in theory, but ultimately the value of a business is determined by what the buyers and sellers agree on.

Here are the three most dominant factors that influence what your business will be worth in the market.

Related: 5 Tips to Getting an Accurate Valuation

1. The revenue model

The ultimate revenue model is an upfront purchase that covers costs and generates a profitable recurring revenue that continues indefinitely into the future. Prior to market saturation, mobile phone businesses fit this model brilliantly, with customers paying for the handset and then the monthly bills. Most of the costs in acquiring a customer were covered on the first purchase, and then the monthly plan was profitable very quickly. Recurring revenues are the holy grail for investors in today's markets, with SaaS structures attracting the highest valuations. If your business has the opportunity to add predictable subscription revenue, this will be the most attractive part of your revenue model.

2. The underlying assets of the business

Up until the year 2000, the most valuable assets were physical. Assets like plant, equipment, land, buildings, heavy machinery or vehicles made up the bulk of the balance sheet, and the valuation wasn't far off it. Today, the most valuable assets are intangible. The brand, systems, data, culture, intellectual property and positioning are all considered to be far more valuable than anything you could put your hands on. Many of these assets require more creativity than cash, which is great news for entrepreneurs who can outclass big corporations when it comes to rapidly developing this type of value. If you want to maximize value in your business, formalize your intangible assets with media, technology, designs, contracts and formal registrations so that your strengths are clear.

3. The operational team

Having a team of talented people who work well together, understand the business and are committed to hitting future goals is considered an asset. Big companies often struggle to get great people working together in high-performing teams, and the "acqui-hire" approach has been the cornerstone for many successful business exits. If you have great people, be sure to train them, develop them and get them enrolled in the long-term success of the business.

Related: 7 Factors That Influence Startup Valuations

Great people, strong assets and predictable revenue; these three factors push the value of an enterprise through the roof. Businesses that fail to achieve a valuation tend to rely upon one or two people, have lumpy incoherent revenue and don't have any unique proprietary assets in development. Once a business focuses on developing these three areas, it will have no problem agreeing to a solid valuation with an investor or acquirer.

Daniel Priestley

CEO, Dent Global

Daniel Priestley is the author of four best-selling entrepreneurship books. He's the co-founder of Dent Global, a leading business accelerator and marketing tech platformScoreApp.

Editor's Pick

Related Topics

Business Ideas

This Teacher Sells Digital Downloads for $10. Her Side Hustle Now Makes Six Figures a Month: 'It Seems Too Good to Be True, But It's Not.'

When one middle school teacher needed to make some extra income, she started a remote side hustle with no physical products and incredibly low overhead. Now she brings in six figures each month, and offers courses teaching others how to do the same.

Career

Top 50 Best Undergraduate Programs for Entrepreneurs in 2024

The Princeton Review and Entrepreneur partnered to rank the top 2024 undergraduate programs for studying entrepreneurship.

Marketing

Google Is About to Delete Inactive Accounts. Here's How to Avoid A Massive Gmail Bounce Rate.

Google will start deleting inactive accounts soon. For businesses like yours, that means many Gmail contacts will probably bounce. Here's how you can avoid that – and keep your business emails landing in the inbox.

Business News

An Ivy League University Is Teaching the Secret of Taylor Swift's Success

Several major universities have added courses dedicated to studying Swift's star power.

Leadership

How to Win Over the Room With Effective Persuasion Skills

The art of persuasion is not just about the notes, the data, and the pitch; it's about creating a connection that resonates with the audience. We explore how a blend of story, active listening, and genuine interaction can not only capture attention but also win hearts and minds, setting the stage for achieving success in any meeting.

Business News

Red Lobster Lost Nearly $11 Million Because People Love Endless Shrimp: 'We Need to Be Much More Careful'

The restaurant chain, which is owned by Thai Union Group, made the promotion a menu mainstay in June.