Email : Hello@incynergy.co.uk | Telephone : +44 1843 449274
The sole purpose of owning a business is to realize value. What value means to you could be different, but for the most part, business owners consistently want three things:
And of course, when the time comes to transition out of your business it’s:
So how do you get there?
To design a business of value, you first need to baseline where your business scores in each of the 8 Drivers of Business Value. Created by John Wrrilow author of the bestselling book, “Built to Sell”, the Value Builder Score focuses on 8 Key Drivers, which studies have shown to influence the value of a business when it goes to sell. In a study of, now, over 70,000 businesses, those that score, or improve their score, to 80 or higher go on to sell their business at a 71% premium compared to average-scoring businesses.
Can you afford not to know your score?
Knowing your score is essential. it only takes 20 minutes and you can do it free. You can do it without entering your financials first time round if you should like to do it quicker. We won’t be able to put a financial ROI on your changes, but you will get an idea of where you are strong and where you are not.
The good news is that the action steps needed to build a business that attracts more offers and eventually sells for a higher price are the same ones that you’ll want to implement to build a business that is easier to manage and provides you with more time, more money, and more freedom.
What is your history of producing revenue and profit, and how professional is your your record keeping?
Many business owners have trouble accepting this, but the hard truth is when someone buys your business they do not consider the hours, the sweat equity, or hard times that you’ve navigated to get to where you are today. Instead, their focus is all on the future profit that your business is expected to create. Those future profit streams are exactly what they are expecting to buy, not your history.
What likelihood of growing your business is there in the future?
As a business owner, having the majority of the market share is a great achievement. After all, it means more revenue, more profit, and typically shows you are on top of the game. But buyers have a different outlook. They are not going to pay top dollar for a business that has little room to grow.
How dependent your business is on any one employee, customer or supplier?
Being too dependent on another person or entity is a big risk for anyone who is looking to buy your business. A buyer must consider if they will be able to keep key employees, establish the same relationships with your customers, and get the same deals with your vendors. If a buyer feels that any of these three sectors are at risk, then they will be less willing to invest in your business.
How well does cash flow through your business?
When someone purchases your business they have to write not one, but two checks. The first check is the check you take home. You obviously want this check to be as big as possible. The second check the buyer writes will be for the working capital or the cash flow needed to keep the business operational. The amount of the second check will have a definite impact on the amount of the first check.
What proportion and quality of automatic, annuity-based revenue do you collect each month?
A business that has more locked-in, guaranteed income, on a month-to-month basis is more valuable than a business that starts their sales at £0 each month. From the buyer’s perspective, if sales start from £0 each month, the risk they are taking is higher than if there is a steady stream of income they can count on receiving. Naturally, those businesses with recurring revenue are more valuable to buyers.
How well differentiated your business is from competitors in your industry?
If your business is easy to replicate then a buyer will either create it on their own, or acquire a business like yours to gain their customer list or reputation. They will not pay premium prices if the business is easy to copy. The more that you can create a business that has a clear and distinct difference for your customers, the more someone will be willing to pay for the business. On a day-to-day basis, running a business that has a monopoly control is preferable. Competing with a brand strategy allows you to avoid competing on price alone.
What is the likelihood your customers will re-purchase from you, and refer you?
If you can show a strong indicator that your customers will not only repeat business with your company, but will also bring in new customers, the value of your business rises. Think about it from the buyer’s perspective. It reassures them that the future predictions you’ve made about growth are more likely to be accurate, but it also means that the lead generation is cheaper as your customers bring in leads.
How well would your business perform if you were unexpectedly unable to work for a period of three months?
If your business cannot thrive without you for at least three months, the buyer is going to have to step in and fill your shoes, or hire someone else to do it. In some ways, the buyer will be purchasing a job on top of the business, or using profits to hire your replacement. If the business can thrive without you, the buyer will see the purchase as a better investment. On a day-today basis, the ability of your business to thrive without you is key to you, or a new owner, having more time and more flexibility.