Building value in your business
In his brilliant book Built To Sell, John Warrillow talks about eight key factors that acquirers look at when assessing saleable value.
Whether you’re intent on selling your business or not, these principles are all worth considering as you look to grow your business. Why? Because they will inform many of the decisions you’ll need to make in the years ahead.
Financial Performance: a consistent and predictable financial performance is more important than impressive profits alone. Acquirers want to see a stable history of revenue and profitability.
Growth Potential: buyers aren’t just buying the past; they are buying the future. You can boost this value driver by having a clear strategy for growth and a plan to execute it.
The "Switzerland Structure": this refers to the business's independence from any single customer, employee, or supplier. A diverse range of stakeholders protects the company from being overly dependent on any one entity.
Valuation Teeter-Totter: this factor examines your company's cash flow management. A business that generates cash efficiently and isn't weighed down by excessive debt or poor working capital management is more valuable.
Recurring Revenue: creating a subscription or repeatable revenue model adds significant value. For agencies this has traditionally revolved around enduring client relationships. But what new models might soon emerge? Either way, the predictability of future income is a key concern for potential buyers.
Monopoly Control: this is about having a unique and defensible position in your market. Warrillow suggests specializing in one niche area to avoid direct price competition and do one thing exceptionally well.
Customer Satisfaction: high customer satisfaction and loyalty ensure a stable customer base. This can be measured through a low churn rate and high Net Promoter Score (NPS), which indicates a healthy and robust business. How are you gauging client satisfaction?
Hub & Spoke: this factor relates to the owner's personal dependency. If the owner is the central point for all decisions, the business will be regarded as less valuable. Documenting standard operating procedures and building systems that allow the company to run without the owner increases its worth.
Whatever a ‘Freedom Point’ looks like for you, the time to start working towards it is now.
Read more about my team of advisors here.
