Determining the Value of a Telecom Company
Growth trends coupled with technology advances make it a great time to sell a telecom business.
In a society that is constantly changing and evolving, technology plays a critical factor in our economy and small business sector. One of the greatest indicators of the state of economy and consumer spending is the telecommunications industry. Businesses in the telecommunication industry provide and maintain data, text, voice and video transmission services to consumers and businesses. The global telecommunications industry was estimated to be valued at $4.7 trillion dollars and contributed 2.4% to the world GDP in 2010, making it one of the one of the most profitable sectors in our economy. This sector is responsible for trillions of dollars in financial output before factoring in the indirect ways it contributes to our economy. For example, nearly 60% of all advertising expenditures in our country were spent on mediums that rely on telecommunication. The telecommunication sector is tied heavily to consumer and business spending as well as technological advancement, and according to experts, these factors will contribute to an expected 4% growth increase in 2016.
Major telecommunications companies include AT&T, Verizon and ComCast, but the bright future painted by our economy is not limited to these industry conglomerates. Small businesses in the telecommunications sector can expect a year of growth and advancement, making it an excellent time to start planning for their future. Every business owner needs an exit strategy and if you have been thinking about taking the next step for your career, it may be time for you to begin planning. Planning an exit strategy is not reserved for entrepreneurs heading for retirement; business owners in every phase of the small business life cycle should have a plan for their future and the future of their business. Even if you are not ready to sell quite yet, it is still beneficial to know what your business is worth and where you stand financially. The first step to planning for the sale of your telecommunications company is getting a valuation. While only a professional business intermediary can tell you the true value of your telecommunications business, these formulas can give you an idea of what goes into the valuation process and how brokers determine the sales price.
- 3x Seller’s Discretionary Earnings includes inventory
- 5x EBITDA
Now that you have an understanding of what matters during the valuation, you can begin the first part of your exit planning journey – increasing the value of your firm. After all of the years of hard work that come with starting and building a successful telecommunications company, don’t you want to get some of that back? After selling several telecommunications companies over the years, we have compiled a list of tips to help you boost the value of your firm so that ultimately, it will sell for the best price possible.
Reputation is huge in the telecommunications industry. How many times have you heard your colleagues complain about their phone or internet providers? It’s safe to say that almost every working professional has probably had a negative experience with their phone or internet provider, which is why it is so important to go the extra mile when it comes to service. Word of mouth is huge in your industry and oftentimes, businesses switch to new providers after hearing about good experiences from their friends. Set your telecommunications firm apart from the rest but making service the highest priority. Not only will you get some free marketing out of it by way of word of mouth, but when it comes time to renew annual contracts, your clients will remember that you treated them as a priority and worked diligently to resolve their issue. Over time, you will see your cash flow increase and customer retention rates go up as a result of providing top notch service.
A huge value booster for middle market companies in the telecommunications space is acquiring an electronic billing system. These are usually leased through third-party vendors and while some are pricey, they are worth it. One of the biggest frustrations among customers in this sector is incorrect bills, which can often be traced to errors made in the accounting department. Electronic billing would significantly cut back on billing errors, leading to a lower customer turnover rate and higher customer satisfaction. Electronic billing systems also cut costs and reduce billing expenses, leading to more money in your pocket. The electronic billing system will be also be reflected in the goodwill value of your business, and buyers will be attracted to a company with an organized AR department and efficient billing system.
Two of the most appealing elements in any business boils down to this: client retention and recurring revenues. If you have recurring revenues and client retention on your side, your business is going to stand out to buyers immediately. Every entrepreneur needs to assess the risk before making an investment and from a buyer’s perspective, a business with recurring revenue and high client retention rates is a safer bet. Achieving client retention and recurring revenues is one and the same; provide quality products and excellent service to retain clients, then lock in your recurring revenues with annual service contracts. Annual service contracts can be used to secure monthly payments which ultimately, will balance your cash flow. Cash flow is one of the most heavily weighted factors in calculating value, so by balancing it, you are setting yourself up for a higher sales price and a larger buyer pool.
In our society, technology is advancing at the speed of light and to remain competitive in the telecommunications sector, your firm needs to keep up with current changes. To do so, you will need to swap out any obsolete equipment on a regular basis and do your homework before buying new equipment, Due to rapidly changing technology realm, the worst thing you could do is invest thousands of dollars into state-of-the-art equipment only for it to become obsolete in a few months. Avoid this by researching equipment and trends before you buy. As mentioned before, inventory is an integral part of calculating the value of a telecommunications business, so you will want to ensure you properly manage your obsolete and new inventory.
If you have been thinking about the future of your telecommunications company, we hope these tips have helped you identify ways to boost the value. After all the years of hard work, you deserve to cash in on your sweat equity and we want to be there to guide and assist you. The economy in the Southeast is booming right now, and growing cities such as Charlotte, Tampa, and Atlanta are catching the eyes of buyers looking to expand. If you are thinking about selling your business, the first step is a valuation, which we offer at no-cost, no-obligation. Let 2016 be the year you take the next step and start planning for the sale of your business today.