Quick Business Valuation Boosters

October 12, 2022

Whether you are looking to sell this year, in 3 years, or even if you don’t have an exit plan timeline yet, there are quick and valuable things you can do now to boost your business. Here are four places where you can easily make changes:

1. Operational Efficiency 📋

Efficient businesses sell faster and for a higher price. The problem is that 'efficiency' means different things to different people. Sure, it's more efficient to carry all eight grocery bags up to the house in one trip as long as you are okay with a few broken eggs along the way. We don't want to break any eggs in our business. Instead, we want to create systems and procedures that make our businesses simple and repeatable. Some examples:

1. Create Standard Operating Procedures (SOPs)

SOPs are documented processes that a company has put in-place to ensure services and/or products are delivered consistently every time while meeting performance standards. For example, creating a guidebook to show employees how to open/close the store. When it comes to SOPs, the more detail the better.

2. Prepare an Annual Operating Budget

While this is something you should do regardless of a sale - life is busy. In any event, an operating budget will make you a better operator. Full stop. The benefit of starting a budget from scratch? It forces you to examine all your expense items line-by-line to calculate your current expenses. It's our bet that you'll find some duplicate expenses along the way.

3. Improve your Cash-Conversion-Cycle (CCC)

While too broad of a topic to cover in this article, improving your CCC makes it easier to sell your business. You can learn more about improving your Cash Conversion Cycle here.

2. Owner Dependency 👤

We ask 2 questions to test how reliant your business is on your involvement:

  1. Would your company thrive if you left for 2 months?
  2. On a normal day, what percentage of customers ask for you by name?

It's not a great sign if you started laughing after reading question #1. But it's okay, start to slowly remove yourself from day-to-day operations or begin the process of hiring someone who can take over some of your roles. Delegation is a beautiful thing.

The second one is more difficult, as you may have developed these customer relationships over the course of many decades. But remember, you are going to need to transfer these relationships to the potential buyer of your business. So you might as well start by transferring these relationships with someone internally (such as your sales manager) first. That way when you remove yourself your loyal customers are not feeling abandoned or out-of-the-loop.

3. Growth Potential 📈

To determine the growth potential of your business, you first need a create a written plan on how you plan to achieve this growth. If we had a dollar for every time we've heard, "I spend nothing on marketing, so there is a huge opportunity to grow the business" we would have enough money to buy every single business out there.

If you are like most business owners, developing a marketing budget/plan is a daunting task. If this is the case, consider hiring a marketing consultant to complete an external audit of your sales and marketing strategy. You can include their final report in your sale to a buyer. A good consultant should help you calculate your potential Return On Ad Spend (ROAS). This helps a buyer as they can see that by investing $X in marketing, it should produce Y% growth.

4. Reoccurring Revenue 🌊

Recurring revenue is often considered the crème de la crème of business models. Buyers/investors see companies with recurring revenue as lower risk, which is why software-as-a-service (SaaS) companies, like Netflix, receive such a high valuation in the stock market.

To boost your business valuation, try to convert as many of your clients to a recurring contract. For example, if you own a window washing business, try and get your customers under a monthly service model.

Buyers like recurring revenue because once you understand your customer retention rate, your revenue becomes very predictable every year/month.

Wrapping Up

These are just a few of actions you can take to prepare to gracefully exit your business. Each of these items that you can cross off your mental (or physical) to-do list, is more money in your pocket when you do decide to exit. Anything that makes Buyers look at your business and say, “but I would have to…” is something you want to preemptively have planned for. “But I would have to hire a general manager to take over operations” you have already begun the hiring process. “But I would have to learn the standard operating procedures on my own because its not written down” You have kept on top of it and it is fully-formed.

Hopefully this helps to ease your mind about “where to start” in your exit planning-planning. If you're looking for more, check out our Urgent Exit Plan Playbook here.

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