Six ways you can increase business value from your vacation this summer
Summer is here, and although it may seem strange, now may be the perfect time to increase the value of your business.
The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that runs on autopilot and levy a steep discount for a business that is dependent on its owner.
This summer, consider taking an extended break from your business to see how things will run when you’re not in the building. It’s likely that some things will go wrong, but use those errors as the raw material for making your business operate more independently of you – and therefore more valuable.
Here is a six-step plan for profiting from your vacation time this summer:
Step 1: Schedule your vacation plus one day
Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later. That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.
Step 2: Bucket the mistakes
When you return, make a summary of the things that went wrong and categorize them into one of three buckets:
- Mistakes: errors where there is a right and wrong answer;
- Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;
- Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.
Step 3: Correct the mistakes
The first and easiest place to start is to simply correct the mistakes that were made. Usually mistakes are due to a lack of training rather than outright negligence. The right answer may be crystal clear in your head but not immediately obvious to your staff. Write up some procedures for next time the employees face the same situation. Make sure your procedures are clear, and share them with your team so everyone has them (a file sharing service like Google Drive or DropBox can be a helpful repository for your instructions).
Step 4: Unblock your bottlenecks
If you’re being asked for your personal input on projects, there’s probably going to be a bottleneck if you’re not around. Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t. Some employees may wrongly think that you need to approve all decisions. Make it clear when you want them to act alone and when you still need to have a say.
Step 5: Re-assign stalled projects
The hardest part of making your business less dependent on you is dealing with projects that get stalled when you’re away. Start by asking yourself if you’re the right person to lead the project in the first place. As the owner of your business, projects often fall in your lap by default, rather than because you’re the best person to lead them. Categorize your stalled projects into two groups:
- a) Strategic projects you need to lead; and
- b) Non-strategic projects you are leading by default.
Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward.
Step 6: Give every employee a blank check
At Ritz Carlton Hotels, they give every employee discretion to spend – without approval from their general manager – up to $2,000 on a guest. The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later. Many employees know how to make a customer happy but lack the confidence to act. Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there. Maybe $2000 isn’t your number but come up with something that works for your business.
The sunshine is beckoning, so go ahead and take a vacation – if you follow the six steps here, you may end up relaxed, with a tan, and a more valuable company.
Want to learn about increasing the value, selling your business, or what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
Read MoreBizBen Index reports California Business For Sale Deal Count Best In Five Years
In a recent article by BizBen 5120 California businesses sold in the first four months of 2015. This is the best calendar year start in the last 7 years! And in April alone 1193 business’s sold which is the most in April since 2010.
According to the article the top reasons for the improved “business for sale” results are:
- Improved access to purchase loan money
- Optimism by both Buyers and Sellers
- More creative deal solutions such as “earn outs” and “alternative financing”
A few statistical highlights of business’s sold by county include:
| LA County up | 12.36% |
| Orange County up | 6.5% |
| Santa Clara County up | 17.9% |
| San Francisco County up | 44% |
| Sacramento area up(Sac, Placer, Butte, El Dorado Hills, Nevada, Yolo) | 24.1% |
To read the entire BizBen article click here.
Want to learn about selling your business and what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
Read MoreWhy Subscribers Make Your Business More Valuable
Why are Amazon, Apple and many of the most promising Silicon Valley start-ups leveraging a subscription business model?
Subscribers not only provide steady revenue; they make your business more valuable in the eyes of an acquirer. In a traditional business, customers buy your product or service once and may or may not choose to buy again; but in a subscription business, you have “automatic” customers who have agreed to purchase from you on an ongoing basis. Ie. Recurring Revenue. Let’s look closer.
Recurring revenue—the hallmark of a subscription business—is attractive to acquirers and makes your business more valuable when it’s time to sell. How much more valuable? To answer that, one has to first look at how your business will be valued without a subscription offering.
The most common methodology used to value a small to midsize business is discounted cash flow. This methodology forecasts your future stream of profits and then discounts it back to what your future profit is worth to an investor in today’s dollars, given the time value of money. This investment theory may sound like MBA talk, but discounted cash flow valuation is something you have likely applied in your personal life without knowing it. For example, what would you pay today for an investment that you hope will be worth $100 one year from now? You would likely “discount” the $100 by your expectation for a return on investment. If you expect to earn a 7 percent return on your money each year, you’d pay $93.46 ($100 divided by 1.07) today for an investment you expect to be worth $100 in 12 months.
Using the discounted cash flow valuation methodology, the more profit the acquirer expects your company to make in the future—and the more reliable your estimates—the more your company is worth. Therefore, to improve the value of a traditional business, the two most important levers you have are: 1) how much profit you expect to make in the future; and 2) the reliability of those estimates.
At SellabilityScore.com, one can see the effect of this valuation methodology. Since 2012, this methodology has been used to track the offers received by business owners who have completed the Sellability questionnaire. During that time, the average business with at least $3 million in revenue has been offered 4.6 times its pretax profit. Therefore, a traditional business churning out 10 percent of pretax profit on $5 million in revenue can reasonably expect to be worth around $2,300,000 ($5,000,000 x 10 percent x 4.6).
Then compare the value of a traditional company with the value of a subscription business. When an acquirer looks at a healthy subscription company, she sees an annuity stream of revenue throwing off years of profit into the future. This predictable stream of future profit means she is willing to pay a significant premium over what she would pay for a traditional company. How much of a premium depends on the industry, and some of the biggest premiums today go to companies in the software industry. You may be a customer to some of them like dropbox, evernote, or teamwork. Now let’s look at a few business examples utilizing the recurring revenue model outside the software industry.
From Alarm Systems to Prescriptions to Mosquitoes
Security businesses that monitor alarm systems and charge a recurring monthly monitoring fee to do so are worth about twice as much as security businesses that just do system installations. Retail pharmacies with a large pool of prescriptions for drugs that people take every day, like Lipitor and Lozol, command a premium over a traditional retailer because customers re-up their pills on a regular basis, creating a recurring revenue stream for the pharmacist.
Even tiny companies are worth more if they have subscription revenue. When my colleagues over at the Sellability Score analyzed very small businesses with less than $500,000 in sales, they found that the average offer these small businesses attract is 2.6 times pretax profit.
Compare that to the average Mosquito Squad franchise. Mosquito Squad is a Richmond, Virginia-based company that offers to keep bugs off your patio by spraying your backyard regularly with a proprietary chemical recipe approved by the Environmental Protection Agency. Mosquito Squad franchisees target affluent homeowners with an average home value north of $500,000 who entertain in their backyard and don’t want to be bothered by mosquitoes. Mosquito Squad operates on a subscription basis. You subscribe to a season of spraying, which includes 8 to 12 sprays, depending on how buggy it is where you live.
Mosquito Squad is a franchise business, and the impact of its recurring revenue model on its valuation is remarkable. According to Scott Zide, the president of Mosquito Squad’s parent company, Outdoor Living Brands, Mosquito Squad franchises that changed hands over the most recent five-year period had revenue of $463,223 and sold for 3.7 times their pretax profit. That’s a 42 percent premium over the traditional value of a company with less than $500,000 in sales, and it’s because Mosquito Squad operates on a recurring subscription model and 73 percent of its annual spraying contracts renew each year.
Whether you plan to build a subscription-based software application or the simplest personal services business, having recurring revenue will boost the value of your most important asset.
Want to learn about selling your business and what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
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Common Reasons for Selling
It has been said that the sale of a business is usually event driven. Very few owners of businesses, whether small or large, wake up one morning and think, “Today I am going to sell my company.” It is usually a decision made after considerable thought and usually also prompted by some event. Here are a few common “events” that may prompt the decision to sell:
Boredom or “Burn-out” – Many business owners, especially those who started their companies and have spent years building and running them, find that the “batteries are starting to run low.”
Divorce or Illness – Both divorce and illness can cause a rapid change in one’s life. Either of these events, or a similar personal tragedy, can prompt a business owner to decide that selling is the best course of action.
Outside Investors – Outside investors may include family, friends, or just plain outside investors. These outside investors may be putting pressure on the owner/majority owner in order to recoup their investment.
No Heir Apparent – In this scenario, no family member has any interest in the business; and the owner has not groomed his or her successor. Unfortunately, in this event the owner often continues to run the business until he is almost forced to sell.
Competition is Around the Corner – In this scenario, the owner would have been better off selling prior to competition becoming an issue.
A “Surprise” Offer is Received – This may be about the only reason not truly event driven; an unsolicited offer is presented that is too good to pass up.
Everything is Tied Up in the Company – The owner/ founder sometimes becomes aware that everything he or she has is tied up in the business. In other words, all the eggs are in one basket.
Should Have Sold Sooner – Owning a small to midsize company (or even a large one) is not without its risks. A large customer goes under, suppliers decide to increase their prices, trends change, business conditions change, etc.
Surveys indicate that many small company owners do not have an exit strategy; so, when an event does strike, they are not prepared. Developing an exit strategy doesn’t mean the owner has to use it. What it does mean is that a strategy is ready when the owner needs it.
A professional intermediary can supply a business owner the real world information necessary not only to develop a plan, but also to know how to implement the plan when it becomes necessary.
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: luanarodriquez via morgueFile
Read MoreValuing A Business: Some Difficult Issue with Business Valutions
Business valuations are almost always difficult and often complex. A valuation is also frequently subject to the judgment of the person conducting it. In addition, the person conducting the valuation must assume that the information furnished to him or her is accurate.
Here are some issues that must be considered when arriving at a value for the business:
Product Diversity – Firms with just a single product or service are subject to a much greater risk than multiproduct firms.
Customer Concentration – Many small companies have just one or two major customers or clients; losing one would be a major issue.
Intangible Assets – Patents, trademarks and copyrights can be important assets, but are very difficult to value.
Critical Supply Sources – If a firm uses just a single supplier to obtain a low-cost competitive edge, that competitive edge is more subject to change; or if the supplier is in a foreign country, the supply is more at risk for delivery interruption.
ESOP Ownership – A company owned by employees, either completely or partially, requires a vote by the employees. This can restrict marketability and, therefore, the value.
Company/Industry Life Cycle – A retail/repair typewriter business is an obvious example, but many consumer product firms fall into this category.
Other issues that can impact the value of a company would include inventory that is dated or not saleable, reliance on short contracts, work-in-progress, and any third-party or franchise approvals necessary to sell the company.
Want to learn about selling your business and what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
© Copyright 2015 Business Brokerage Press, Inc.
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