How to build value into your business

How to maximise the value of your business! Let’s start with the basics and a reality check. Your business is only worth what someone is willing to pay for it and that is defined by how much the buyer values the assets, your ability to generate working capital, your ability to generate profits, the repeatability, and a little bit of good will for future opportunity. Unfortunately, how you value your business is different to how the buyer values it – they have no interest in how it funds your life style or how you have built relationships over the years. They base their decision entirely on how well your business can deliver something they can’t do themselves or that compliments the existing offerings. Remember the #1 commandment when buying a business is: I shalt not buy what I can easily do/replicate myself! So how do you maximise your business value and ultimately your realised sale figure? 1 – remove chaos – Your business is worth more if it has a fundamental grasp of the basics – i.e. It knows where it is going and has a clear plan of how to get there; It is run through the numbers; it consistently delivers in line with the client’s needs and it is run efficiently and effectively, where every action has a purpose. If you are doing all the above, your business is still only worth between 0 – 2 x profits. That’s right it can still have a multiple of zero, this is where the business’ ability to generate cash is only as good as the current order book. 2 – Build predictable cashflow – the better you are at generating customers, revenues and profits via a repeatable process, the more your business is worth – we are now moving towards 2 -3 x multiple. 3 – Systemise your business – Around 80% of the routines in any business can be systemised. Remember, systems run businesses. We are now around 3 - 4 x multiple. 4 – Build a high performing team to run your systems, which run your business. Do be aware that you may start to feel redundant from the day to day as the business owner. We are now at 4 - 5 x multiple. 5 – Scalable future opportunity – this is where you either grow through geographical expansion or show a buyer that your sales channels can carry other products to the same markets. We now should expect 5 – 7 times multiple. To take the business value beyond this you need to improve area that affect the multiples as opposed to the effective operation of the business. Some of these include: Reducing dependence on one supplier, employee or customer; removing the owner from the decision making process; Building a membership/recurring revenue model, creating a monopoly and optimising the business’ ability to be cash positive. So to maximise the value of your business you must optimise revenues and profits, demonstrate a clear direction, show future opportunity and that the business runs without the owner via a solid and talented management team to take the business forward. Finally the more money that is required to fund the operating capital of the business, the less you get in your pocket as it all comes out of the same pot. If you would like support with the structure, performance, revenues and profits of your business, speak to a business coach. If you want to explore how to maximise the value multiples speak to an expert in building value multiples.

BUSINESS VALUE