Hey there! Ever thought about how important first impressions are for potential investors evaluating your accounting business?

We all know they play a significant role in how customers perceive your company and decide to spend their hard-earned cash. But guess what? Investors are equally influenced by those initial impressions when it comes to valuing your business.

Let’s take a real-life example from Jeremy Parker and his venture, Swag.com. Initially, investors saw Swag.com as a run-of-the-mill distributor of promotional products.

Despite Parker’s best efforts to position the company as more than just a middleman, the investors remained unconvinced. Consequently, they offered him a low single-digit multiple of EBITDA for a stake in his business, lumping Swag.com together with other promotional product companies.

But here’s where the magic happened. Parker knew he had to change the game. He re-strategized and presented Swag.com as an e-commerce platform with a catchy domain name and a top-notch direct-to-consumer buying experience.

This shift in perception transformed Swag.com from a simple distributor to a technology company in the eyes of investors. And guess what? It paid off! Parker received an acquisition offer that valued his $30 million company at a healthy multiple of revenue. Impressive, right?

When it comes to raising funds or selling your accounting business, optics matter a whole lot. The way investors categorize your business in their minds can make or break the deal. So, it’s essential to make that killer first impression!

The Alibaba Discount: How Diversification Can Impact Your Accounting Business’s Valuation

Speaking of getting categorized incorrectly, let’s talk about the recent news from Chinese Internet giant Alibaba. They announced their plans to split into six separate businesses, and guess what happened next? Alibaba’s market value soared by a whopping $19 billion in just two weeks. Now, that’s something to ponder, isn’t it?

Here’s the deal. Alibaba consists of various businesses, similar to those of Amazon.com, including e-commerce, logistics, and cloud storage. Before the split announcement, Alibaba was valued at only ten times their earnings forecast for next year. But here’s the twist—each individual business as a standalone is likely to fetch a much higher multiple in terms of valuation.

You see, investors often underestimate diversified businesses like Alibaba. They tend to focus on assets they’re specifically interested in and apply the lowest value multiple to the entire group of companies. This situation isn’t unique to Alibaba; Amazon faces similar challenges. Experts estimate that Amazon’s cloud storage division, AWS, could be worth a staggering $2–3 trillion as a standalone business. However, since Amazon offers a range of services, from e-commerce to audiobooks and cloud storage, its entire market capitalization is currently less than half that value. Crazy, right?

Finding the Right Balance: Revenue vs. Valuation Goals for Your Accounting Business

Let’s talk strategy for a moment. If you have investors supporting your accounting business, they will typically prefer that the business concentrate on dominating a single product or service rather than diving into unrelated offerings. Why? Well, diversification might make investors perceive your business as unfocused, which can lead to a lower valuation. And the same principle applies when it’s time to sell your company. If your accounting business appears scattered, potential acquirers may zoom in on your least valuable division and apply that valuation to your entire organization. Not ideal, right?

So, it’s crucial to set your priorities straight. Ask yourself this: Do you want to grow your accounting business by increasing revenue, or do you aim to enhance its overall value? While these goals are related, they require different strategies. If your primary focus is to boost revenue, diversification might be the way to go. But if you’re dreaming of a more valuable accounting business that you could potentially sell, maintaining a clear focus is absolutely crucial. Spend time considering that, so that when you do meet with investors you can give them an idea of what direction you’re envisioning the company going. In the accounting industry, this will probably come down to serving a specific niche versus serving a more general audience of clientele.

Remember, first impressions, smart categorization, and strategic goals can make all the difference in the accounting world. Keep them in mind as you’re meeting with your clients and investors.

Universal Accounting Center’s training and coaching programs will help you build confidence in your abilities as an accounting professional so you can nail that first impression. To learn more, give us a call at 877-801-8080 or schedule a time to discuss your future when it’s more convenient for you.

Now, go out there and wow those investors with your bookkeeping, accounting, and tax preparation expertise!