Most homeowners are pretty good at maintaining the value of their house. If something breaks, they fix it. They will maintain their yards and put on a new layer of paint every 5 years or so. But few do a good job at steadily increasing the value of their homes. This requires setting funds aside to update things in the house that one has grown accustom to and that still function well. Maintaining and increasing the value of your home requires discipline and vision. Business owners need to have a similar mindset. You may not need or want to sell your business now, but this could change in the future. These are some of the questions that might then present themselves: What will it be worth? How valuable do potential buyers view the business? How can you get top dollar?
If an unexpected situation happened and you were forced to sell your home – maybe a job transfer or family illness – would you be able to get top dollar? Could you sell quickly? Would anyone even be interested in your house? I know of many homeowners who experienced disappointed when they want or need to sell and reality hits them square between the eyes.
Thousands of business owners – especially baby boomers – are thinking about retirement and want to fund this new chapter in their lives by selling their most precious asset: their business. Most will be shocked to learn that their business is nowhere as valuable as they believe and the interest in the market for their company is low. What could these owners have done to increase the value of their companies?
The Value Builder System™ is a statistically proven methodology for increasing the value of a company. After analyzing more than 17,000 businesses, Value Builder has discovered that companies with a Value Builder Score of 80 or more, received offers that are 71% higher than the average business.
Here is a list of the 8 key drivers that business owners need to focus on and invest in, over time, in-order- to increase the value of their companies:
1. The Switzerland Structure: Switzerland, a country of 8 million, 26 cantons and 4 languages, prides itself on its political, economic and social independence. Healthy companies understand the risks of becoming too dependent on key customers, suppliers and yes, even on a key employee. The goal is to reduce these dependencies so that all your eggs are not in one basket.
2. Financial Performance: Most business owners understand that strong financial performance is all about having consistent revenue growth and strong bottom line profit. What many business owners don’t question is the quality of their financial reporting. An independent auditor might see your numbers a bit different and could advise on areas that might be a concern.
3. Growth Potential: Few companies have grown as quickly as Uber. Founded in March, 2009, Uber Technologies, Inc. went from a town car service in San Francisco to 8 million users in 50 countries with over 1 million trips a day. Their current market capitalization is valued at $62.5 billion. How can companies grow their business:
• Offer new products to existing customers
• Enter new geographic markets
• Enter new demographic segment
4. The Valuation Teeter Totter: A key question that purchasers of businesses ask is related to the health of a company’s cash flow. Is more money going out each month than is coming in. What kind of cash is required to keep the lights on and the people paid. The valuation teeter totter is all about getting the right balance between what’s going out and what’s coming in and trying to shift that balance toward the side of money coming in the door.
5. Recurring Revenue: Security companies can install cameras, monitor those cameras or do both. The smart ones, those that achieve the highest value are the ones that can lock in customers with a monthly service contract. Many companies believe that their business model doesn’t allow for recurring revenue. Often times its just a question of creativity.
6. Monopoly Control: Being able to control the price that you charge for your product or service hinges on the question: Can I differentiate my product in the marketplace? Your marketing strategy needs to be focused on two key points:
• Is what I’m doing or offering meaningful to my customers?
• Do my customers really care?
7. The Customer Satisfaction: The best way to know if your customers think highly of you is if they recommend you to family, friends and colleagues. We call these value customers “Promoters”. Those that don’t actively promote your business can be labeled “Passives”. Hopefully you don’t have any customers that speak badly of your product or service. These are called your “Detractors”. The mathematical equation for customer satisfaction is: Promoters% – Detractors % = Net Promoter Score %. Business owners who want to increase the value of their company will proactively obtain customer feedback and act upon it.
8. Hub & Spoke: A typical bicycle wheel has 28, 32 or 36 spokes and one hub. If you break one or two of the spokes, you can still ride the bike. Not so with the hub. If it breaks then the wheel needs to be either repaired or replaced. The analogy of the hub and spoke of a bicycle is an important one, especially for small and mid-size business owners. Often, the business owner is the hub and the employees are the spokes. If the business is too dependent on the owner and all decisions are directed back to the hub, then the value of the company is diminished. A good question to ask yourself is this: If I decide to take a three month vacation can the company continue to run smoothly?
Whether they’d love to sell their business today, pass it on to a child tomorrow or have no intention to ever selling, business owners must work diligently to increase the value of their company. The Value Builder System™ is a unique tool that can support them to achieve this goal.Interested in Increasing the Value of Your Company? Contact me today and take the 15-minute on-line assessment. It’s free!
Email Burt@Lohoff-Gaida.com for more details.