Your business value isn’t just about sales….
Most people think your business value is just about sales. With a few exceptions, this is incorrect.
Of course, sales are important. If you had zero sales, you wouldn’t be in business. When you go to value your business, or actually sell it, it is only one of many factors a prospective buyer will look at.
A couple good examples come to mind. Facebook at millions of active daily users but no revenue. It IPO’d for a ridiculous amount because it had huge growth potential. Computer chip providers are another example, they have billions in revenue, but their profit margin is miniscule. They are a high-volume business, with exceptional process management and an extremely high barrier to entry.
When we look to sell a business there are 8 key value drivers that determine how much your business is sold for. Specifically, the multiple it is sold at. The better your business operates the larger multiple of revenue you can sell the company for.
If you gross $2m a year, with a 10% net profit, your business is clearing $200k/year. If you are critical to your business operating smoothly, we may get a 3x multiple on your business and you’ll need to work in it for another few years before you are allowed to leave. So, it’s worth $600k.
Now, you could increase sales by 10%, but that only increases your business value by $60k. Instead, if we increase your multiple to 4x, we’ve increased it by $200k!
What are these key drivers, and how can you increase them? That’s a bit more complicated than can be explained in a blog post, but here is a free assessment to see how you rank in each of the 8 key drivers: