We want to help you build value and get the valuation and payout you deserve. But how can we do that when there are so many unique industries and markets out there? Well, we have a few thoughts on that. So today, we want to share with you our thoughts on how to build value, maximize valuation and get the cash you want when you sell.
The Value of Building Value
As successful as we find ourselves today (or not), it’s important to be able to look at your company like a commodity. To help your company build value, you need to first see where you’re weakest and go from there. It might be tempting to start with what you’re already doing well and just do more of it… but honestly, that’s not going to get you a significant return.
Any buyer looking at your business has already seen that. They see what your business does well and they think you’re attractive enough to get a closer look at — gee, lucky you. And this is great, particularly if you’re looking for a private equity sale or find a synergistic buyer. But the second buyers start to look closer at your books and general well-being of your business, they’re going to take all those little (and not-so-little) hiccups as risks and will use them to justify a reduction in price.
We know this negotiating dance well. This is why it’s vital you look at those bigger gaps. Even if you do decide to go the PE route to be a roll-up, you’ll get a higher valuation and dollar amount at close if you have de-risked your business and made it a stronger acquisition. If you want to find someone who is going to buy your business and continue it as a going concern and following your legacy, they’re going to want to buy a less risky business.
There are a ton of ways to build value, and we talk about them all the time on our podcast. However, we also really like how John Warrillow deals with them in his book, Built to Sell. John identifies eight key value drivers entrepreneurs can manipulate to increase valuation. Needless to say, working on each of these areas corresponds with strengthening aspects of your business that may have been overlooked. Essentially, you’re going to do a bit of business due diligence to get to the root of your issue. It is ultimately worth it, though, as you start to see improved numbers and terms.
Whether you’re breaking these points up into eight groupings or simply letting the numbers from your business due diligence tell you the story of your business’ health, it’s important you are getting some numerical guidance. Some of the best ways to build value are things as simple as recurring revenue or customer satisfaction. Loren Horsager came on for a really good talk about recurring revenue and Anthony Bahr gave us the lowdown on how important customer due diligence and therefore customer satisfaction is.
So what are some ways to build recurring revenue into your business?
Subscription-based businesses do really well in today’s economy. In fact, you hear the term “subscription age” regularly now and we can all appreciate why that is. Think about how many subscriptions you have right now. There’s Netflix, phone, satellite, internet, magazines, The Life After Business podcast, doggy goodie boxes, human goodie boxes… the list is nearly endless. Businesses have even more needs. So if you think about all the markets that carry over into yours, can you build recurring revenue out of the products or services you sell right now?
That’s the long/short of it. Can you make a subscription out of a product or service you offer to show recurring revenue and thereby improve your valuation? It’s just as hard as it sounds. It’s also just as worth it. Think about crossing over markets or providing add-on services that generate revenue while are a normal part of business. For example, if you own a car dealership, offer a monthly or yearly membership to professional car washing and detailing for a decent price but with unlimited uses. Very few people are going to wash their cars every day, so your potential for revenue is huge. It’s like how gyms operate: If all their members showed up at once, you wouldn’t all be able to fit inside.
The nice thing about providing these services is not just the boost it gives your business’ portfolio, but that you’re positively impacting your clients and customers. And that is another great way to build value.
Servicing your customers and increasing their satisfaction will increase your valuation
We all want to give back more; we say it all the time, particularly when we’re talking about what we’re thankful for. Despite this, we also often focus more on how our business is running and what we should be doing better rather than on providing +1 service to our clients. It’s not that their mishandled or unhappy — you wouldn’t let it get that far! — but it’s just not urgent to go ‘above and beyond’ if it’s going to cost you something to do it today.
We talked last week about knowing when to invest your money into improvements and when to hold back, and this follows the same logic.
If investing in your client care will help with retention, this saves you real dollars down the line. Even better, happy clients buy more stuff. We all know this — and the cubic ton of research put into how to make us all spend more demonstrates just how real this is. If you’re making it easy for your client to buy stuff from you or you make it more rewarding, the client has a reason to stay with your brand. And remember, that’s how many of your customers and clients see you. They see the points they get at your hotel chain and therefore are more likely to book with your hotel or they have had your phone services for years and really dislike change, so since you haven’t made things hard on them… they stay.
Even better is when they refer someone to your business because of how satisfied they are with your products or services. So you should be asking yourself: What else can I do to make my customers happy? Does that fit in my budget right now, and what can I do if not?
Don’t forget to ask for help. We can give you some pointers, but you should also check with your best advisors to get as many ideas going as possible.