If you’re like a lot of business owners, you assume the value of your company will be determined by your industry and its size. While size matters, there are eight other factors that impact the value of your company more than your industry. In fact, after analyzing more than 40,000 businesses, The Value Builder System™ has discovered getting these eight factors can lead to acquisition offers that are more than twice the industry average. Likewise, we have seen examples of companies getting less than half the industry average multiple because of a weakness in one or more of these eight areas.
The eight factors that impact company value:
1. Financial Performance: Your history of producing revenue and profit combined with the professionalism of your record keeping. You may want to sell your business right now or years from now, yet you need to not only predict the future of your business, yet formalize your financial operations to be able to set your own realistic data driven goals and results. There is nothing that provides a buyer more confidence than seeing clean books and proper record keeping!
2. Growth Potential: Your likelihood to grow your business in the future and at what rate. In a Value Builder Engagement, we deep dive into this factor as well as the others. It is a very important factor since it brings up not only critical thinking about your business yet also, your vision for your business. One way to work on your business growth potential is to create a vision board to illustrate where you want your business and yourself to be in the future!
3. Switzerland Structure: How dependent your business is on any one employee, customer or supplier. A buyer will what to know how your business will perform after they purchase it. One way is to have your customers on recurring contracts and to have what the most valuable businesses have lots of – Customers. It is better to have lots of little customers than one or two big customers as most buyers will balk if any one of your customers represents more that 15% of your revenue.
4. Valuation Teeter Totter: Whether your business is a cash suck or a cash spigot. The impact of your cash flow impacts the value of your company. The more cash flow you generate the more valuable your company will be. The less cash you generate, the less valuable your company will be to a buyer. In a Value Builder Engagement with us, will investigate what can happen to boost the cash flow within your business.
5.Recurring Revenue: The proportion and quality of automatic, annuity-based revenue you collect each month. One of the 9 Value Builder Subscription Models is The Private Club Model. This model is where a business offers access to something of limited supply on a membership subscription-type basis. This model works best if your business has something of a limited supply that almost always is a service or experience that is high demand among affluent consumers. This could also include a market of achievement-oriented striver types who are constantly attracted to the greener grass on the other side.
6. Monopoly Control: How well differentiated your business is from competitors in your industry. We help you isolate the attributes and qualities of your business that give you a defendable market position to that of your competitors and the most meaningful to customers since companies with a monopoly in their market tend to get 50% high offers when it comes to selling their businesses.
7. Customer Satisfaction: The likelihood that your customers will re-purchase and refer you. You may have heard of the Net Promoter Score (NPS) that is considered the predictable way to measure your business growth. It includes in the very least the survey question, ‘On a scale of 0-10, how likely are you to recommend our business to someone else?
8. Hub & Spoke: How your business would perform if you were unexpectedly unable to work for a period of three months. Your business may have become too dependent upon you if you offer too many products and/or services. It can be hard to find and train employees that can deliver with such a full breadth of offerings. You do not need more things to sell, you need to pick something that makes you unique and focus more on finding more customers. For employees, focus on creating systems and procedures for them to follow. You may find it will be far easier to step away for a family emergency or even a vacation when everything is not all on you alone.
There can be many factors that impact your company value. The Value Builder Score questionnaire and corresponding Reports and Assessment serve to identify those factors and determine a company’s performance for each one. This allows a business to make informed strategic choices to increase their value.
The Value Builder Score Questionnaire considers such factors as: firm size, industry type, number of customers and growth rate, along with many other factors that have been correlated to growth and provides a score. The Assessment allows you to see which variables are pulling down or pushing up the company’s value.
After analyzing over 55,000 questionnaires, The Value Builder System discovered that the average owner starting with us achieves a score of 59 out of 100 on their first Value Builder Score questionnaire. For those who have received a written offer, the average is 3.7 times their pre-tax profit.
Business owners who achieve a score of 80+ achieve offers of 6.3 times their pre-tax profit or 71% greater than the average business. That is why the Value Builder System is such a powerful tool that DBG Advisors uses with our clients.
To see how your company scores, you can complete the ValueBuilder Questionnaire and get a report on how you’re doing in each area.
Next, contact us and we will set up a free consultation to review your results of your ValueBuilder Questionnaire, a $500 value.
Receive a Complimentary Book, Written by Dr. Nolan Duck
Dr Duck wrote this book for business owners in Texas who want to scale up and exit their businesses. It contains his experiences in selling companies over the past 15 years. Hopefully, it will help you prepare for your exit.
In this practical book, you’ll discover: