Dragon’s Den and Shark’s Tank participants always fascinate me with how much value they add to their businesses just because of their passion for their own business – sometimes disregarding the fair market value. Some of these evaluations can be so astronomical that it puts the investors off while others have completed their numbers accurately and come prepared with a value that is quite reasonable and attractive
Many of the seminar’s participants have been in business for 20 – 30 years and only now examining their succession plan. While, Life Moves Health and Fitness Inc approaches it’s seventh year I am trying to think of what value my business brings to me, not just financially but also other more personal rewards. Part of this valuation is figuring out what my own retirement plan is for 20 – 30 years from now.
4 Keys to Increasing Business Value
- Create Documented Systems (Policies and Procedures)
- Clean Up Your Financial Books
- Create Business Where the Owner is Not the Operator (main income generator)
- Create a Business With Excellent Client/Customer Loyalty
Create Documented Systems
A business has very little value of how it is operated is all in the owner’s head. Get all that information out on to paper where someone is able to pick it up, read it and then duplicate it. Trying to keep a business growing when the owner who has all the businesses’ knowledge is seems like a very daunting if not impossible task.
Clean Up Your Financial Books
Make sure that all your financial information is up-to-date and it is easy for the buyer to complete their due diligence. Get all your cash sales on the books, e.g. record everything. One way to value a business based onmultiples of earnings before taxes, income and amortization (EBITA). One client who invests in businesses said many business are trading on 1.5 x income. This could mean a significant change in value if half of the revenue is in cash sales and not recorded, Paul said to get that on your books.
Create a Business Where the Owner is Not the Main Income Generator
There isn’t much to sell being a owner/operator who generates all the income. It isn’t a bad thing to own a job, being a single person operator. However, what about creating a business with a team of people – such as a Personal Training business with a team of trainers instead of the slew of independent trainers that are out there? Is your team empowered to make decisions are you able to delgated to them?
Create a Business With Excellent Client/Customer Loyalty
Clients tend to follow the trainer or practitioner but not always; clients are often referred to the practitioner, not the business. Paul mentioned that value of the intangibles such as client goodwill is reflected in the financial statements – e.g. revenue is generated by clients.
If you own a studio or clinic try to make your clients part of the fabric of the business by incorporating them into the business’ culture. Introduce them to all the staff, find ways to have them be treated or trained by other team members. As owners make sure you get to know as many clients as you can. Make a connection with them so they feel connected with the business, not just with the provider.
Educate current clients on how to refer to the business, not just the individual team member. When new clients comes to your clinic help them understand your process and that you work together to assist with the client/patient’s needs. Doing both of these while having a client transition plan will help mitigate any loss of income when staff leave.
These are only some of the considerations Paul Savage mentioned when considering selling or seeking investors, however they are what resonated with me. All four of these are not easy, however I believe that focused attention and a lot of hardwork to these matters will add value while increasing the viability of Lifemoves.