You started your Business for the Freedom that comes with running your own company; the freedom to earn what you deserve, and to work for whoever you want, when you want, and from wherever you want.

The challenge is that for many business owners the dream remains elusive. In fact you may feel trapped in your business because:

  • You know more than anyone else in your company about your industry.
  • Your customers ask to deal with you personally
  • You are involved in the building or creating of what you sell
  • And You are the companies best sales person

Having worked with thousands of business owners over the past twenty years across all industry types it amazes me how many owners don’t have a succession plan or an exit strategy. Then there’s the others that believe they have a saleable asset but the reality is it’s actually WORTHLESS.

So what’s the real story?

The question is “ Could you sell your business if you really wanted to?” Now I’m not saying you want to sell it now, maybe that’s still years away… the question iscould you sell it?

Maybe at a discounted price, or perhaps a long winded painful earn out…

In many cases Business Owners are relying on the sale of their Business to set them up for the future yet in the majority of cases the reality is a whole lot different, resulting in working for many years more than anticipated or eventually just shutting up shop and walking away with nothing to show.

So what if there was a better way?

I’m here to tell you after around twenty years in the Business Consulting Industry plus owning and operating a stack of businesses of my own along the way there definitely is. Hindsight is an amazing thing… how differently I would have done things knowing what I know.

As the late Stephen Covey used to say “Commence with the End in Sight.”

The best time to start planning to sell your business is the day you start it, hey humor me for a moment. What if you created a business that was ‘Built To Sell’which at the end of the day is the ultimate goal and when I say built to sell what I’m saying is built to achieve the best price, money in the bank without painful earn outs or special conditions.

Is that possible?

Absolutely! There are eight key drivers that reflect if a business is saleable and at what price. So knowing that, wouldn’t it make sense to see how you rate in each of those areas and then go to work to improve all eight areas over a period of time. Hey, if there are areas that you SUCK at then start with those ones first.

Let me share the Eight Drivers that are essential to get right.

1. Financial Performance

Remember, the goal is to build a sellable business – not necessarily because you want to sell it…but because owning a sellable business gives you the ultimate freedom.

After analyzing thousands of transactions, we can say definitively that financial buyers only buy one thing when they make an acquisition:

They are buying your future stream of profits.

Repeat: financial buyers are buying your future stream of profit. Therefore, as an owner, you have two big levers to pull on to drive up the value of your company:

  1. How much profit your company will make in the future
  2. How reliable are your estimates.


Let’s take a look at how an acquirer will value your business one day: not because you’re necessarily planning to sell, but because understanding the methodology an acquirer will use in the future allows you to drive up the value of your business today.

The acquirer will start by trying to estimate how much profit you’ll make in the future and then apply a rate of return they want in return for committing their capital. For example, imagine you have a business that is forecasting to earn $1,000,000 in pre-tax profit next year and a buyer comes along and wants a 15% return on their money. He/she would be willing to spend $869,570 today, for the rights to $1,000,000 a year from now. Simply take $1,000,000 and divide it by 15% or 1.15.

But that’s not the end of the story because this business – like your business – expects to make a profit two years from now as well. The buyer will again value the second year of profit by applying their expectation for a 15% return. But now, they have to wait two years for their money and therefore the $1,000,000 is divided by 1.15 twice so you get $756,140.

The buyer is going to project our your future stream of profit many years into the future and then will simply add up the value of the future stream of profit. So in this hypothetical case where a business is expected to generate $1,000,000 in profit each year for the next ten straight years, you would total the right hand column and arrive at a valuation of a little more than $5,000,000.

 

Let’s now imagine a second business. This second business also projects $1,000,000 in pre tax profits for the next ten years but in this case, the reliability of those estimates is shaky. Given how risky the future stream of profits is, the buyer has a very high expectation for a rate of return (just like you and I, the riskier the investment, the higher return we expect). Now when you apply a 50% discount to the future stream of profits, the business ends up being worth less than two times today’s earnings. 


The reality is, your business will likely get a discount rate somewhere between an overly optimistic 15% and an overly pessimistic 50% and the rate will be determined by how risky the buyer deems your future stream of profits to be.

2. Growth Potential

Most Businesses try and sell stacks of products and services to their existing customers which means the business owners gets trapped doing the selling as the team simply don’t have his/ her level around the product knowledge.

This leads to the Owners Trap..

  1. Owner Does the selling
  2. Offers Way too many things
  3. Owner is the only one capable of delivering
  4. Owner interfaces with the customer

This phenomenon is called “The Owner’s Trap”. Signs you’ve fallen into the trap are:

  • Business slows when you take a vacation
  • Customers come to you with their problems
  • Your growth has reached a plateau

TIP: Reduce the range and focus on the trifecta of growth… Only have products and services that are Teachable, Valuable and Repeatable.

3. The Switzerland Structure

How reliant are you on any one Employee, Supplier or Customer?

If one customer represents more than 15 % of sales then your valuation crashes. Similar if you are reliant on one or two employees or one supplier.

4. The Valuation Teeter Totter ( See Saw)

It’s named after the See Saw because just like the child’s playground toy, the value of your business moves in the opposite direction of your cash flow needs. In other words, the more cash your business needs, the less it’s worth. The opposite is also true: if your business generates cash as you grow, your business will be worth more to a buyer.

 

The reason is simple: when a buyer acquires your business, they have to write two cheques: one to you, the owner and a second check to your business to fund its “working capital” (accountant's speak for the money you need in the bank to pay your immediate obligations like salaries rent and payables).

The money to write these two cheques comes from the same pocket so the bigger the cheque the acquirer needs to write for working capital, the smaller the cheque you’ll end up getting.

Not only does improving your cash flow increase the value of your company, it also makes it a lot less stressful to run.

5. Recurring Revenue

To reiterate a point made when we discussed Financial Performance, a buyer buys your future stream of profit and therefore, the more reliable you can make your business model the more valuable your company.

You’ll get dramatically more offers and they can be up to three times higher if you have a recurring revenue stream.

There are six main recurring revenue streams that all business owners need to aware of and apply to their businesses.

6. The Monopoly Control.

The 6th factor that drives your company’s value is something we call “The Monopoly Control” and it refers to how well differentiated your product or service offering is.

Having been personally mentored by the Grandfather of Marketing Jay Conrad Levinson to be one of his Global Master Trainers, your marketing superstar is yourUniqueness in the Market…. It’s what sets you apart and should be your Marketing Superstar. Jay used to say “If you are trying to be everything to everyone you are actually being nothing to no- one” ……..OUCH!

7. Customer Satisfaction

Not surprisingly, having satisfied customers is an important element of growing a valuable business. But having satisfied customers is actually not enough.

Your goal should be to have customers who are not only happy, but also willing to re-purchase and refer you to their friends.

That is a much higher bar to reach – as Fred Reichheld discovered.

Reichheld is a Bain consultant who has spent his career studying customers and the way companies measure their satisfaction.

Early on, Reichheld discovered that there is virtually no relationship between a customer saying they are satisfied and the likelihood that they will either re-purchase or refer you.

Many customers would say they were happy and then purchase from a competitor the very next day.

Reichheld got to work combing through the numbers and discovered one question which was predictive of both re-purchase and referral:

On a scale of zero to ten, how likely are you to recommend us to a friend of colleague?

It turned out, the answer to that question was highly predictive of both referral and re-purchase. Reichheld developed a standard measure to benchmark companies on willingness to recommend and it has become the industry standard satisfaction benchmark among virtually every Fortune 500 company including the likes of Apple, Intuit, FedEx, eBay, Amazon.

This process is know as the Net Promoter Score and is an essential measure for all businesses wanting to increase their value. Above you'll see the average as well as the world leaders.

8. Hub and Spoke

Why so many businesses are actually WORTHLESS!

The final driver of value is arguably the most important. We call it “Hub & Spoke” and it is the extent to which your business relies on you personally.

A Hub & Spoke manager controls their business with a decisions centralized at the hub. Remove the hub and the business is worthless which is why companies reliant on their owner are either deeply discounted or worthless.

More importantly, Hub & Spoke businesses are stressful to run because you can never take a break and all decisions – even the most mundane are brought to you. ( This is actually how I used to run my businesses before learning a better way… I was actually my business)

This is where distinguishing between how profitable your business and how valuable your business is can come in handy.

Some people use profitable and valuable interchangeably but of course they are often in conflict with one another:

  • Instead of hiring salespeople, the owner seeking to maximize her profits would do all of the selling herself
  • Instead of hiring a management team, the owner seeking profit would likely hire the lowest paid staff they can find to simply execute
  • While the profit-seeker may maximize their profits, they would also grow a worthless business.

OK so now you know the eight major drivers what’s next?

The first step is to find out how you rate in each area currently, to do this simply complete a ‘Value Builder Questionnaire’ Online, this will take 10-12 minutes to complete.

Answer a Value Builder Questionnaire HERE NOW

This will generate an instant score out of 100 with the ultimate goal to be at 80 plus. Why? Simple, statistically at 80 plus your business will be up to 71% more valuable.

In addition to a score being generated a twenty seven page detailed report will be created ranking your business in each of the eight key areas.

Normally you’d pay one of my team of Certified Value Builder™ Consultants to de brief your report and explain it fully….

As a special free offer to my Linked In contacts and friends I will personally conduct this session myself.

 Plus: You can also join me on a Free Webinar Training ‘The Freedom Workshop’where I’ll go through how to ‘Create a Company That Thrives Without You’

Register for the Free Webinar HERE

Register for the Free Webinar HERE

Cheers,