For many small business owners, aside from their home, their next biggest asset is their business. As such, the proceed from the sale of their business can be a life changing event. Hence improving the business valuation is of paramount importance. In this article, I will share 10 bullet proof ways for you to implement before you sell your business in Singapore.

1. Revenue Trend

For many business buyers and M&A professionals, the first thing they look out for is revenue growth. Any business that exhibits a consistent revenue growth of 20% in the last 3 years convey optimistic opportunity for the prospective buyer at the first glance. If a company is showing stagnant or declining sales, this is normally seen as a red flag and will affect the business valuation.

Pro Tip: Sell the business when it is experiencing rapid growth. This will give you the most ideal valuation and bargaining chip when negotiating with buyers. If your business is facing stagnant growth, you can either sell it for a lower valuation or work on its fundaments before selling business in Singapore.

Image Source: Reddit

2. Profitability

Profitability is an indicator of the company operational efficiency and market positioning. For certain industry, having zero or low profitability is acceptable if the company is aggressively pursuing market share. This is more common among start-ups backed by venture capitalist or private equity.

For the valuation of most businesses, it is typically the multiplier of EBITA (Earnings before interest, taxes, and amortization). It’s common among buyers to look at EBITA margin of at least 15% - 20%. Businesses with low EBITA (Typically less than 15%) is an indicator of weak company positioning, market saturation, poor business fundaments or high churn rate. Except for commodity or shipping industry.

Pro Tip: Re-evaluate the rental, marketing and labor cost as these are typically the highest cost component for businesses in Singapore. Hiring offshore talent, remote working, using software to automate, adopting central kitchen, reducing customer acquisition cost (CAC) or customer churn rate are common ways to do so.

Image Source: @SingaporeLite | Twitter

3. Patent, Trademark and Intellectual Property

For most small businesses, it’s common for business owners to put off having any patent, intellectual property or trademark due to cost and time. For service-based industry, there might be little need to. However, for product or technology-based businesses, having patent represents a competitive advantage for a limited period.

Image Source: Wikipedia

An example is Amazon “1-click” ordering patent. The idea that consumers could enter in their billing, shipping and payment information just once and then simply click a button to buy something going forward was unheard of before when Amazon secured this

patent in 1999. That was in the early stage of e-commerce, which allows Amazon to present the idea of a hassle-free online shopping. Amazon's U.S. patent expired on September 11, 2017.

4. Quality of Earning

The idea behind the quality of earning is to assess how the company generate its revenue. A high quality of earning demonstrates resilience and predictability of the business to prospective business buyers.

An example of a company with high quality of earning: A subscription-based B2C business, Netflix which has been growing their subscribers consistently QoQ.

Source: An extract from Netflix Fourth Quarter 2023 Earnings Interview | Shareholders’ Letter, 23 January 2024

Their revenue has been improving gradually over the earlier quarters. Moreover, their customer base is global (This add to their resilience) and these customers are subscribers who pay every month. Typically, customers tend to subscribe this service for years.

5. Brand Equity

When it comes to a good brand, it’s hard to come up with a quantitative value of it, but you know it when you saw one. Especially if you are from the same trade or if it’s a B2C product that you are familiar with.

Brand equity is much more than just Google reviews, Facebook likes and TikTok videos. It’s when customers pro-actively priorities your product/ service over others, despite having comparative offering, quality or even pricing.

Brand equity allows the owner to charge a higher pricing, which translate to higher profit margin. It also contributes to customer loyalty, which translate to higher CLV (Customer Lifetime Value).

Examples of companies with strong brand equity includes Singapore Airlines, Old Chang Kee, Shopee, HubSpot, Scanteak, Häagen-Dazs, AppSumo and Pearlie White.

There are a few ways to assess a brand equity:

1.        Can the business owner raise their price by 10% without losing customers?

2.        Check the NPS (Net Promoter Score) of the brand.

3.        Are the customers willing to tag the brand on their social media? E.g. IG, FB or TikTok

4.        The search volume of the brand on Google

Image Source: Decathlon

One of my favorite brands, Decathlon is a good example. A popular sports product company that was found in 1976 in France. You can check out the number of visits they have from Singapore alone. They have done an amazing job serving the mass market globally with a wide range of products, relatively good quality and low pricing strategy.

Image Source: Ubersuggest

Image Source: Ubersuggest

By looking at the keyword visitors used to locate Decathlon website, this will give you a good idea of their brand strength!

Pro Insight: A buyer will view a business with strong brand equity, similar to how a man will view an attractive lady, vice versa.

If you are looking to sell business in Singapore, these are the following actions you can take. It obviously takes time to implement, hence it’s better for you to plan at least 1 to 2 years ahead. It is a good idea to talk to a business broker in Singapore to strategize your exit too.

When it comes to buying a business in Singapore, these are the few attributes you should pay special attention to.

Read Next Article: 10 Bullet Proof Ways to Improve Your Business Valuation – Part 2

Read Next Article: 5 Tips Before You Buy a Business In Singapore!

Need a 2nd opinion for buying or selling a business in Singapore? Talk to a business broker in Singapore today!