We recently brought in a valuation expert to talk with our business owner clients so they could get a pro’s viewpoint on how to increase the value of their businesses for sale. Her insights were instructive and, importantly, came from a potential buyer’s perspective. See how your company stacks up:
Top 7 Business Value Drivers
- Your business is running under management – A business running under management is worth significantly more, often selling at 30-40% higher multiples (7-8 x EBITDA vs. 3x) and faster than an owner-dependent one, because buyers see less risk and more stability, viewing it as a true asset rather than a job; owner reliance creates massive operational risk, drastically reducing its appeal and price, sometimes by over 50%.
- Your books are clean – if you’ve co-mingled business and personal expenses over time, like your vehicle, home office, or “working vacations,” it’s time to get your finances cleaned up. Sloppy books give the impression that you run a sloppy operation – find a reputable bookkeeper to do the detail work.
- You have a business plan that outlines future potential. Historical growth is excellent, but that’s not what buyers are buying. They want to see the plan for future growth – how your company will navigate downturns, disruptive technology, the competitive landscape, untapped opportunities… in short – what’s your business plan for the next 5 years and how do you plan to handle succession? This plan and roadmap are just as much for your team as potential buyers – they want to know what the future looks like, too.
- No more than 15% of your business is tied up in any one customer – If 15% or more of your business is with a key client, that’s a huge risk for a new owner (and for you, too). When that client goes away, there goes a huge chunk of your revenue and gross profit, while your expenses and fixed overhead remain the same. Work hard to increase the number of customers who make up the top 80% of your sales – this won’t happen overnight, but it will insulate you from future losses and lessen the risk for potential buyers.
- You are scaling or have the ability to scale– We define “scale” in two ways: 1. your next sale is easier, and 2. your next sale costs less. For you to scale, your people will need to learn, grow, and be trained, and your systems will need to grow while maintaining a high customer experience. Don’t fall into the trap of making things more efficient for you and making things harder for your customer. Your systems and people need to maintain and grow the customer experience in a way that’s easier for everyone, and costs less than acquiring, onboarding, and servicing a customer now.
- Your niche has some good runway – at least 10 years or more. Lots of professional services businesses are ripe for disruption because of the capabilities AI can bring. Make sure your products, services, and target markets have at least 10 solid years of growth potential.
- Your team submits and tracks against a budget – this discipline trains your team to run your company systematically and with predictable results. They know what to prioritize and what needs to wait. They’ll get out of reaction mode. Potential Buyers want to see that your team honors their commitments.
Biggest Mistake to Avoid
STARTING TOO LATE: It’s natural to put off planning for your exit. You’re busy getting sales in the door. Your managers need you for support. You don’t have time. Your business isn’t even ready to be transferred yet – you couldn’t exit if you wanted to. You have no idea what life could look like if you weren’t here at your company – your entire identity is here.
Here’s what happens when you kick the can down the road:
- You get burned out – no longer willing to muscle through yet another economic downturn
- You have a health event – and are forced to abandon your business because you physically cannot be present, putting your people out of work and leaving your customers without help.
- Your people leave – because your hair’s not getting any less gray, and they don’t see a future career path with you.
Do this instead:
- LEARN – attend Coach Amy’s Break Through Series FREE Webinar on Succession
- DEEPLY LEARN & START YOUR ROADMAP – sign up for our 12-week Succession MasterClass.
You are three short months away from knowing what to anticipate, who should be on your exit team, what you need to do to make your business transferable, and how to handle the emotions that come with letting go of the reins. - TAKE THE FIRST STEP – schedule a 20-minute call with Coach Amy where you:
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- Get answers to questions you have that you’ve always wished you could have an outside set of eyes and ears on.
- Uncover the #1 bottleneck that’s stopping you from growing further and sabotaging how much your organization could be worth (and transferable).
- Get at least one key strategy that will get you started on your way to scaling & gaining back your time – and having a company that can transition – whether that’s today, next year, or in 10 years.
Susan Thomson, CEO, Licensed Coach
ActionCOACH Business & Executive Coaching
Direct: 608-441-5374
MakeMoreWorkLessWI.com