Actionable ways to build the value of your business
Last week I ran my weekly live masterclass on the actionable ways to build the value of your business, following on from our Expert Interview with the corporate finance expert Barry Lee.
So I wanted to follow up with a summary of that workshop with all the elements you should be considering right now to start building the value of your business.
Start with the end in mind
No matter where you in your business journey, what do you WANT for your life, when might you want to sell? How much money do YOU need to be financially free? And do you have an idea who might be likely to buy your business one day?
Why it’s a good idea that you start building value right NOW!
The things that are attractive and valuable to a buyer are also very attractive and valuable to you right now and in the future, whether you sell or not.
A valuable business makes and keeps more profit, it has more cash, it has a healthier balance sheet, and it’s growing your personal wealth all the time
A valuable business can invest in your pension, in growing the business, or in other investments - all things that will grow your personal wealth, and whilst you’re building the value of your business.
You might have a change in circumstances and find yourself wanting to sell. This might be due to health, family circumstances, you might fall out with a business partner, or fall out of love with your business.
And you might get approached out of the blue by someone wanting to buy your business - so you want your business to be valuable and saleable, rather than have to walk away because you’re not ready yet.
So what IS valuable to a buyer?
Numbers:
Growing your profit year on year
Improving cash flow
Solid financial information and control
Customers and revenue:
Recurring revenue
Contracted revenue (this is the most valuable)
Diversified customers, which means that you’re not reliant on one or a few key customers
Customer retention – do your customers buy again and again, or do you have to keep hunting down new ones?
Showing you have capability to bring new products or services to market
And a solid marketing process that consistently brings in sales
People and processes
A business that is NOT reliant on you and can run without you is always super important to a buyer
Slick, repeatable routines and processes
Employee engagement and retention – no one want to buy a business where the staff are miserable and keep leaving!
Potential and strategic areas
Scalability - has your business got the potential to scale from where it is now?
Differentiation – what is your USP, how are you different or better than your competitors
Have you got a strategic plan
Brand and reputation
Low risk of commoditisation and competitor disruption
Intellectual property
So WHAT exactly can you do to build the value of your business, on a practical level?
Firstly, make yourself redundant – remove yourself from day to day operations
Put processes and routines in place, document them and make sure everyone follows them
Grow your gross and net profit margins
Focus on customer service and retention
Strong financial control and reporting
A having clear vision and strategy for the business
Then you should measure the right things, often
Find out how your business would be valued and then track your value at least quarterly.
Make sure you’ve got amazing financial information, with graphs, and key performance indicators so you’ve got the full story (not just a crappy profit and loss report from your accounting system)
Measure your customer retention, average order value, how often your customers order, make sure you always know what percentage of your turnover your biggest customers are, no one should ever go over 10%.
Measure your recurring and contracted revenue every month.
Measure team retention, and their happiness and engagement using an online staff survey.
And measure your progress towards your vision.
It’s always worth building the most valuable business you can, because this will build the BEST business you can. For now, and for your future.
It’s too important to leave to chance!