8 Steps To Increase the Value of Your Business By 71%, Without Increasing Sales

By | Blog, Selling Your Business, Value Builder System, When To Sell

How much did your home increase in value last year?  Depending on where you live, it may have gone up by 5 – 10% or more.

How much did your stock portfolio increase over the last 12 months? By way of a benchmark, The Dow Jones Industrial Average has increased by around 13% in the last year. Did your portfolio do as well?  

Now consider what portion of your wealth is tied to the stock or housing market, and compare that to the equity you have tied up in your business. If you’re like most owners, the majority of your wealth is tied up in your company. Increasing the value of your largest asset can have a much faster impact on your overall financial picture than a bump in the stock market or the value of your home.

Let us introduce you to a statistically proven way to increase the value of your company by as much as 71%.  Through an analysis of 6,955 businesses, we’ve discovered that companies that achieve a Value Builder Score of 80+ out of a possible 100 receive offers to buy their business that are 71% higher than what the average company receives.

DID YOU KNOW?

The Quality Of Your Lifestyle & Value Of Your Company Have One Major Thing In Common.
They Are Both Dramatically (Negatively) Affected By Your Business’ Dependence On You.

When your own company requires your direct involvement and your name fills multiple circles in your organizational chart, you know firsthand what that leads to — burnout and stress.

Furthermore, no one else would want to buy such a business, regardless of how much profit it generates, because acquirers want to buy a business system, not a job.

Fortunately, there is a proven methodology for systematically increasing the value and “sellability” (a huge benefit even if you have no plans to sell) of your company, thereby increasing the quality of your lifestyle and level of personal freedom you experience every day, by transforming your company into a self-managing income-producing asset that can thrive without you.

It’s call The Value Builder System. 

The first step toward this freedom is to get your Value Builder Score to see where you currently stand.

Companies that score 80+ typically have valuations 71% higher than the average scoring (59/100) business.

Complete the 18-minute questionnaire and instantly get your score out of 100 possible points.

 

How long would it take your stock portfolio or home to go up by 71%? Years – maybe even decades. Get your Value Builder Score now and you will be able to track your overall score along with your performance on the eight key drivers of company value. Like a pilot working his instrument panel, you can quickly zero in on which of the eight drivers is dragging down your value the most and then take corrective action.

Your overall Value Builder Score is derived from your performance on the eight attributes that drive the value of your company:

  1. Financial Performance: your history of producing revenue and profit combined with the professionalism of your record keeping.
  2. Growth Potential: your likelihood to grow your business in the future and at what rate.
  3. The Switzerland Structure: how dependent your business is on any one employee, customer or supplier.
  4. The Valuation Teeter Totter: whether your business is a cash suck or a cash spigot.
  5. The Hierarchy of Recurring Revenue: the proportion and quality of automatic, annuity-based revenue you collect each month.
  6. The Monopoly Control: how well differentiated your business is from competitors in your industry.
  7. Customer Satisfaction: the likelihood that your customers will re-purchase and also refer you.
  8. Hub & Spoke: how your business would perform if you were unexpectedly unable to work for a period of three months.

To find out how you’re performing on the eight key drivers of company value and start your journey to increasing the value of your largest asset, get your Value Builder Score now…

       

5 Reasons Why Now Might Be The Right Time To Sell

By | Blog, When To Sell | No Comments

Are you trying to time the sale of your business so that you exit when both your business and the economy are peaking?

While your objective to build your company’s value is admirable, here are five reasons why you may want to sell sooner than you might think:

1. You May Be Choking Your Business

When you start your business, you have nothing to lose, so you risk it all on your idea. But as you grow, you naturally become more conservative, because your business actually becomes worth something. For many of us, our company is our largest asset, so the idea of losing it on a new growth idea becomes less attractive. We become more conservative and hinder our company’s growth.

2. Money Is Cheap

We’re coming out of a period of ultra-low interest rates. Financial buyers will likely borrow money to buy your business so—at the risk of over simplifying a lot of MBA math—the less it costs them to borrow, the more they will spend to buy your business.

3. Timing Your Sale Is A Fool’s Errand

The costs of most financial assets are correlated, which is to say that the value of your private business, real estate and a Fortune 500 company’s stock all move in roughly the same direction. They all laid an egg in 2009 and now they are all booming. The problem is, you’ll have to do something with the money you make from the sale of your company, which means you will likely buy into a new asset class at the same frothy valuation as you are exiting out at.

4. Cybercrime

If you have moved your customer data into the cloud, it is only a matter of time before you become the target of cybercrime. Randy Ambrosie, the former CEO of 3Macs, a Montreal-based investment company that manages $6 billion for wealthy Canadian families decided to sell in part because he featured feared a cyber attack. Ambrosie and his partners realized they had been under-investing in technology for years, at a time when cybercrime was becoming more prevalent in the financial services space. Ambrosie decided to sell his firm to Raymond James because he realized the cost for staying ahead of hackers was becoming too much to bear.

5. There Is No Corporate Ladder

In most occupations, the ambitious must climb the ladder. Aspiring CEOs must methodically move up, stacking one job on the next until they are ready for the top post. They have to put in the time, play the right politics and succeed at each new assignment to be considered for the next rung.

By choosing a career as an entrepreneur, you get to skip the ladder entirely. You can start a business, sell it, take a sabbatical and start another business and nobody will miss you on the ladder. Your second (or third) business is likely to be more successful than your first, so the sooner you sell your existing business, the sooner you get to take a break and then start working on your next.

It can be tempting to want to time the sale of your business so that the economy and your company are peeking, but in reality, it may be better to sell sooner rather than later.

Why Now Is The Riskiest Time To Own Your Business

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Most people think of starting a business as risky, but unless you invest a significant amount of start-up cash in your venture, you’re not really risking much other than your time.

That changes if you’re lucky enough to get your business off the ground. As your company grows, you start to risk more and more of your wealth because the business you’ve built is actually worth something. The longer you hang on to it, the more you have to lose.

This phenomenon makes owners become more risk averse as their business grows, potentially squeezing off growth to avoid risking what they’ve created. This can mean the owner goes from a company’s great asset to its biggest liability.

Cigar City Brewing

For an example of how growth can impact an owner’s appetite for risk, let’s look at the case of Joey Redner, the founder of Florida-based Cigar City Brewing. Redner’s craft beer operation started off in 2009 with the relatively modest goal of selling 5,000 barrels of beer per year.

Cigar City proved popular with the locals and Redner was able to sell 1,000 barrels of beer in his first year of business.

Cigar City Brewing continued to grow but was thirsty for cash, eventually forcing Redner to take on an SBA loan. Redner quickly surpassed his 5,000-barrel goal, and by 2015, had scaled all the way up to 55,000 barrels per year, at which point he ran out of capacity in his brewing facility.

To get to the next level, Redner would have had to find another $20 million for a major expansion, but he was tired of the feeling of being “all in” at the poker table. He had built something successful and wanted to enjoy financial security rather than having to roll his winnings into even more debt that he would have to personally guarantee with the bank.

Redner decided to sell even though his business was still growing and he had built a brand Floridians loved.

And therein lies one of the hidden reasons owners decide to sell. They are tired of shouldering all of the risk. Most of us have a limited appetite for risk, and, as the Bob Dylan song goes, “When you ain’t got nothing, you got nothing to lose.” Start-ups aren’t risking much, but when you build something successful, every day that you decide to keep it is another day you have all (or most) of your chips on the table, and, no matter how strong your hand, eventually we all decide to cash in.

One Way To Decide When To Sell

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How do you know the right time to sell your company? One answer to this age-old question is that the time to sell is when someone else is willing to invest more in your business than you are.

When you start a business, nobody is willing to invest in its success more than you. You’ve already worked a 40-hour week by Wednesday and, if you’re like most founders, you’ve invested a big chunk of your liquid assets to get your business going.

You’re all in.

In the early days, you are willing to risk your business on a new strategy because the business is pretty much worthless. As the Bob Dylan lyric goes, “When you ain’t got nothing, you got nothing to lose.”

As your business grows and becomes more valuable, you may find yourself becoming more conservative, unwilling to risk the equity you have created inside your business on your next big idea. You have reached a point where someone else may be willing to risk more time and money for your business than you are.

Peach New Media 

David Will is the founder of Peach New Media, which he started back in 2000 as a reseller of web conferencing. In the early days, Will changed his business strategy frequently, trying to find an idea with legs. After a number of pivots, he landed on selling learning management software to associations.

The business grew nicely and by 2015 Peach New Media had 40 employees and then received an attractive acquisition offer from a large private equity company. Will was conflicted. He loved his business and treasured the team he had built. At the same time, the acquirer was offering him a life-changing check.

In the end, Will realized that he had become somewhat more conservative as his business had grown and the potential acquirer was willing to make a big bet on integrating Peach New Media into another one of its acquisitions. Will realized he had reached a point where his appetite for risk in his own business was lower than his potential acquirer’s. Will decided to sell.

When To Sell

The point where a buyer is willing to risk more than you are happens at a different stage for everyone. Let’s say you have a business worth $1 million today. Would you be willing to risk the entire thing on a new strategy for a shot at making it a $10 million company? Many entrepreneurs would take that bet.

Now imagine you have a company worth $10 million and your business represents the bulk of your net worth. Most would argue $10 million is life-changing money. Would you be willing to risk your entire company for a chance to make it a $100 million company? The marginal utility of an extra $90 million is minimal—we all only need so many cars—but the risk is significant. Fewer owners would bet $10 million for a chance at $100 million.

What if your business was worth $100 million? Would you risk it all for a long shot at becoming a billion-dollar company? It is hard to imagine any one person betting $100 million dollars on anything, but if you’re the CEO of a billion-dollar corporation with ambitious growth goals, $100 million is a bet you may be willing to make.

When someone else is willing to invest more in your business than you are, it is probably time your company finds a new owner.

The Downside of Just Milking It

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If you have considered selling your business of late, you may have been disappointed to see the offers a business like yours would garner from would-be acquirers.

According to the latest analysis of some 20,000 business owners who have used The Value Builder System, the average offer being made by acquirers is just 3.7 times your pre-tax profit.  Companies with less than a million dollars in sales garner significantly lower multiples, and larger businesses may get closer to five times the pre-tax profit, but regardless of size private company multiples are still significantly less than those reserved for public company stocks.

Given the paltry offer multiples, you may be tempted to hold on to your business and “milk it” for decades to come. After all, you might reason that if you hang onto your business for four or five more years, you could withdraw the same amount in dividends as you would garner from a sale and still own 100% of the business.

This logic – let’s call it the “Just Milk It Strategy” – seems sound on the surface, but there are some significant risks to consider.

1. You Shoulder the Risk

The biggest downside of holding on to your business, rather than selling it, is that you retain all of the risk. Most entrepreneurs have an optimism bias, but you need only remember how life felt in 2009 to be reminded that economic cycles go in both directions. While business may feel good today, the next five years could well be bumpy for a lot of founders.

2. Disk Drive Space

If you think of your brain like a computer’s disk drive, owning a business is like constantly running anti-virus software. Yes, in theory you can do other things like play golf or enjoy a bicycle trip through Tuscany and still own your business, but as long as you are the owner, your business will always occupy a large chunk of your brain’s capacity. This means family fun, vacations and weekends are always tainted with the background hum of your brain’s operating system churning through data.

3. Capital Calls

Let’s say your business generates $500,000 in Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA), and you could sell your company for four times EBITDA or keep it. You may argue it’s better to keep it, pull your profit out in the form of dividends, and capture the same cash in four years as you would by selling it. This theory breaks down in capital-intensive businesses where there is usually a big difference between EBITDA and cash in the bank. If you have to buy machines, finance your customers, or stock inventory, a lot of your cash will be locked up in feeding your business and the amount of cash you can pull out of your business each year is a fraction of your EBITDA.

4. Tax Treatment

Depending on your tax jurisdiction, the sale proceeds of your business may be more favorably treated than income you would garner by paying yourself handsomely with the Just Milk It Strategy. You may actually need to pay yourself $2 or $3 for every $1 you can net from the advantageous tax treatment of a business sale.

5. You Can Do Better

Finally, you may be able to attract an offer higher than three or four times your pretax profit. The businesses we work with who have a Value Builder Score of 80 + get offers that are, on average, 6.1 times their pretax profit. Some of the owners we work with do even better, stretching multiples into double digits.

If you’d like to get your Value Builder Score, please let us know by replying to this email and we will make arrangements for you to complete the 13-minute questionnaire.