For your company to be valuable or even sellable there’s a lot more to consider than just the bottom line such as will your customers continue buying or will a competitor start chipping away at your margins?
It’s important to understand what drives up or undermines your company value. And there’s a way to find out – using the Sellability Score.
‘The Sellability Score was created by a team of researchers led by John Warrillow, author of the international bestseller Built to Sell: Creating A Business That Can Thrive Without You. The book inspired a movement of entrepreneurs who recognize that the ultimate test of a business is not how big it is, but how valuable it can become’ http://www.thesellabilityscore.com/
They identified, through research on over 6,000 businesses, that there are eight factors that you can work on that will increase the value of your business
These eight factors are ways to help you evolve your business to give you freedom of choice – to sell, to be able to work sensible hours for the same or more revenue, or to stand back from it almost completely, or even as simple as to be able to go away for a two week holiday without worrying about whether the business is going to implode without you there.
So what are these eight factors? I must emphasise that these aren’t magic wand/quick fix answers in the majority of cases. These are areas that you work on over time building value that way. Beware anyone who says they can wave a magic wand and give you overnight success.
1. Financial performance
This is particularly important if you are looking to sell. You will need to show any potential purchasers that your sales and profit projections for the future are based in sound historical fact. They will have in their minds what return they want on your business and also how risky they think it is. And not having comfort over your projections increases the risk to them and therefore decreases the value of your business and what they are prepared to pay.But it’s also incredibly valuable for you as a business to have budgets and forecasts and measuring performance against your budgeted figures.
Action: Create a budget and measure performance against it.One of my big mantras is – What gets measured gets done. If it’s written down and reviewed, then it’s far more likely you will hit your targets
This is how scalable your business is or how easy is it for you to grow your business. This may sound an odd statement, but the secret to scaling is to sell less stuff to more people! Too many of us fall into the trap when starting out of trying to offer your services (vast) to everyone. It rarely works.Your ability to scale is dependent on you
– being able to teach others your skill
– having products or services that lead to recurring revenue
– aligning your products to your most valuable customers
Action: Review your products and services against these criteria. If they tick all three boxes focus on them and if they don’t tick the boxes, think about either how you can develop them so they do, or possibly contemplate not offering them.
3. The Switzerland structure
Maintaining neutrality. i.e. you shouldn’t be over dependent on a customer, supplier or employee.
You should not have a customer who makes up more than 15% of your revenue, and you should be able to switch supplier. The overreliance on an employee, could be you by the way!
Action: Review your customers, suppliers and employees to see if you need to take any action to reduce your dependence on them.
4. Valuation see-saw
Another equation – the more cash your business needs, the less value it has. If you are selling – if the person buying your company has to write out two cheques when they buy your business – one to buy the company and another to pay for working capital – it’s going to make you a less attractive purchase.
So this is all about cash management
– Not holding too much stock
– Having tight processes around invoicing and debt collection
– Getting the most favourable terms with your suppliers and so on
Action: Do all of the above!
This is back to something I alluded to earlier on in Scalability. The more reliable your income streams are, the more value your business has. One off transactions are at the bottom of the scale, where you want to get to is a recurring revenue stream. Mobile phone companies are good at this with their two year contracts, then auto renewal products such as your antivirus on your laptop, other renewable memberships. Or selling one product, but then getting regular income off consumable products – printers and paper, nespresso etc.
Action: Think about any ways in which you can offer your services or products on a recurring basis.
Action: You want to have a niche – identify the thing(s) your most valuable customers value about your products/services and sell more of that to them and to others like them.
7. Customer satisfaction
This almost goes without saying. But what you need to be able to do, is to prove that your customers are happy. It’s not good enough to say that you pride yourself on excellent customer service without providing the facts to prove this.Action: One easy way is to implement the net promoter score system .
Or use online review sites such as Revoo and Trust Pilot amongst others.
8. Hub and SpokeThis is degree to which they business relies on you and it affects the value of your business. If everyone reports to you, or your customers and suppliers will only speak to you, you are at the centre of your business. You are the hub and your company – to be blunt – is worthless company if you are looking to sell.
Action: If you want a profitable business then this may work for you as you keep your overheads down, but if you are looking to sell, or take a step back, or even aim to take a two week holiday, then you will need to look at the structure of your business to see how you can shift the reliance on you to others
If you’d like to know more, let me know.