How to build a business for Value

How to build a business for Value

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This Webinar is about building a valuable business.

Building a business for Value gives you options:

• the freedom to do things your way

• to work with who you want, when you want

• financial freedom

Only about 4% of owner managed businesses make it to the stage where the owner can really say they have achieved the freedom they are looking for.

Most get caught in something called “The Owner’s Trap”.

Signs you’ve fallen into the trap are:• business slows when you take a vacation

• customers come to you with problems

• your growth has reached a plateau

The ultimate freedom is to own a valuable, sellable business.

Your business is sellable if it is not dependent on you.

That means you can do the following without being involved in the day-to-day:

• Scale it• Sell it• Pass it down• Run it as the chairman

So what drives value in a business?

There are eight key drivers to your company’s value:

• Financial Performance• Growth Potential• The Switzerland structure• Valuation See-Saw• Recurring Revenue• Monopoly Control• Customer Satisfaction• Hub & Spoke

1. Financial Performance

Financial buyers only buy one thing when they make an acquisition: they buy your future stream of cash.

What drives up the value of your company?

• how much cash your company will make in the future

• how reliable your estimates are

2. Growth Potential

This is your potential to scale up and grow in the future.

Scaling up requires you to isolate a small set of products or services to sell that meet the Trifecta of Scaleability:

• Teachable• Valuable• Repeatable

The secret to scaling is to sell less stuff to more people.

The secret to scaling is to sell less stuff to more people.

The Switzerland Structure

10a. You too should be obsessed by making sure your business is independent of any one customer, employee or supplier.

That means:• No one customer makes up more than 15% of your revenue

• You should be able to switch any of your suppliers without significantly impacting your business

• Reduce your reliance on one or two key employees

The Valuation See Saw The value of your business moves in the opposite direction of your cash flow needs.

The bigger the check the buyer needs to write for working capital, the smaller the check you’ll end up getting.

Recurring RevenueA buyer buys your future stream of cash. The more reliable the cash flow the more valuable your company.

The best way of doing this is to create a subscription model .

There are 9 Subscription models from simple Membership through Private/ VIP club through Simplifier – but that’s a whole topic in itself.

The Monopoly ControlThis refers to how well differentiated your product or service offering is.

The key thing in looking for differentiation is to ask your customers whether they care!

Customer SatisfactionYour goal should be to have customers who are not only happy, but also willing to re-purchase and refer you to their friends.

Hub & Spoke

To what extent does the business rely on you personally?

Instead of hiring sales people, the owner seeking to maximize her profits would do all of the selling herself

While this may maximize her profits, she would also grow a worthless business.

So to build a valuable business, you need to take yourself out of the hub!

Summary:

Most of us started our businesses for the freedom to build something on their terms.

Most of us fall short of this dream and become trapped in our business. The ultimate goal of any business owner seeking freedom should be to build a valuable, sellable business because that gives you the best set of choices: scale, sell, pass down or become/ take on a non-executive chairman role.

BizSmart aims to help business owners of small and medium sized businesses to create value and scale their businesses through sound practical business support by providing insight, Clarity combined with a real determination to help you succeed.  

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