Quick question: do you know the value of your business?
Most business owners I speak to can readily tell me:
- How many customers they have
- What their revenue is
- How much profit they make
But not too many can give me a confident answer when quizzed on the value of their business. Value here referring to the financial amount you could reasonably expect to receive if, and when, you decide to exit your business.
In essence, what your business is worth to potential buyers.
Whether your strategy is to sell your business in five years or build an empire that can run without you or retire early, it’s important to maximise the value of your business while you can.
Are you a value builder?
If you are, or know, a Value Builder, you will be familiar with how they differ from the typical, old-school business owner. Don’t get me wrong; there is nothing wrong with following sound business principles. You’ll build a business that some may even consider successful. But will it be a valuable business? Will you be able to walk away one day with its true value in the bank?
Value Builders focus on building business value rather than simply increasing revenue. They also:
- See beyond the traditional transaction business model and concentrate on generating recurring revenue streams.
- Have a clear intent of building a business that works without them.
- Offer products and services with a robust competitive advantage
- Sell less to more customers
- Actively nurture recurring business
- Understand exactly how their company creates cash
- Protect their equity
(Source: Value Builder System™, Typical Owners vs. Value Builder)
How to build a valuable business?
Here are some tips from the Value Builder System™ that will help you build a more valuable business:
- Stop chasing revenue. A larger company is not necessarily a more valuable one if the extra sales come from products and services that are too reliant on you to deliver them.
- Start surveying your customers using the Net Promoter Score methodology. It’s a fast and easy way for your customers to give you feedback, and it’s predictive of your organisation’s growth in the future.
- Sell less stuff to more people. The most valuable companies have a defendable niche selling a few differentiated products and services to many customers. The least valuable businesses sell lots of undifferentiated products and services to a concentrated group of buyers.
- Drop the products or services that depend on you. If you offer something that needs you to produce or sell it, consider dropping it from your offerings. Services and products that require you suck up your time and cash and don’t contribute significantly to your business’s value.
- Collect more money upfront. Turn a negative cash flow cycle into a positive one, and you boost your business’s value and lessen your stress load.
- Create more recurring revenue. Predictable sales from subscriptions or recurring contracts mean less stress in the short term and a more valuable business over the long run.
- Be different. Refine your marketing strategy to emphasize the point of differentiation that customers value. Be relentless in highlighting this advantage.
- Find a backup supplier for your most critical raw materials. Consider placing a small order to establish a commercial relationship and diversify the sources of your most difficult to find materials.
- Teach them to fish. Answer every employee question of you with “What would you do if you owned the business?” Your goal should be to cultivate employees who think like owners so they can start answering their own questions without coming to you.
- Create an instruction manual. Document your most important processes so your employees can do their work independently.
How do you plan to walk away from your business one day?
PS: If you are interested in learning more about how valuable your business is, why not complete this quick questionnaire, and we will be in touch to discuss the results. You can also read my blog, How Much is My Business Worth?