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3 Ways To Make Your Company More Valuable Than Your Industry Peers

Have you ever wondered what determines the value of your business?

Perhaps you’ve heard an industry rule of thumb and assumed that your company will be worth about the same as a similar size company in your industry. However, when we take a look at the data provided by The Value Builder SystemTM, we’ve found there are eight factors that drive the value of your business, and they are all potentially more important than the industry you’re in.

Not convinced? Let’s look at Jill Nelson, who recently sold a majority interest in her $11 million telephone answering service, Ruby Receptionists, for $38.8 million.

That’s a lot of money for answering the phone on behalf of independent lawyers, contractors and plumbers across America.

To give you a sense of how high that valuation is, let’s look at some comparison data. At Value Builder, we’ve worked with more than 30,000 businesses in the last five years. Our clients start by completing their Value Builder questionnaire, which covers 35 questions that allow us to place an estimate of value on a company. The average value for companies starting with us is 3.6 times pre-tax profit and those who graduate our program with a Value Builder Score of 80+ (out of a possible 100) are getting an average of 6.3 times pre-tax profit.

When we isolate the administrative support industry that Ruby Receptionists operates in, the average multiple offered for these companies over the last five years is just 1.8 times pre-tax profit. 

Nelson, by contrast, sold the majority interest in Ruby Receptionists for more than 3 times revenue.

There were three factors that made Nelson’s business much more valuable than her industry peers, and they are the same things you can focus on to drive up the value of your company:

1. Cultivate Your Point of Differentiation

Acquirers do not buy what they could easily build themselves. If your main competitive advantage is price, an acquirer will rightly conclude they can simply set up shop as a competitor and win most of your price sensitive customers away by offering a temporary discount.

In the case of Ruby Receptionists, Nelson invested heavily in a technology that ensured that no matter when a client received a phone call, her technology would route that call to an available receptionist. Nelson’s competitors were mostly low-tech mum and pop businesses who often missed calls when there was a sudden surge of callers. Nelson’s technology could handle client surges because of the unique routing technology she had built that transferred calls efficiently across her network of receptionists.

Nelson’s acquirer, a private equity company called Updata Partners, saw the potential of applying Nelson’s call-routing technology to other businesses they owned and were considering investing in.

2. Recurring Revenue

Acquirers want to know how your business will perform after they buy it. Nothing gives them more confidence that your business will continue to thrive post sale than recurring revenue from subscriptions or service contracts.

In Nelson’s case, Ruby Receptionists billed its customers through recurring contracts—perfect for making a buyer confident that her company has staying power.

3. Customer Diversification

In addition to having customers pay on recurring contracts, the most valuable businesses have lots of little customers rather than one or two biggies. Most acquirers will balk if any one of your customers represents more than 15% of your revenue.

At the time of the acquisition, Ruby Receptionists had 6,000 customers paying an average of just a few hundred dollars per month. Nelson could lose a client or two each month without skipping a beat, which is ideal for reassuring a hesitant buyer that your company’s revenue stream is bulletproof.

Nelson built a valuable company in a relatively unexciting, low-tech industry, proving that how you run your business is more important than the industry you’re in.

interested to know what drives the value of your business?

We invite you to take the Value Builder Score.

This is a powerful benchmarking tool that rates your business against the key factors that acquirers will pay a premium for. Over 30,000 business owners have now taken this assessment to measure their business, and it’s been statistically proven that companies with a score over 80 are getting valuations 71% higher than the average.

There’s no cost to take your score and it only takes about 10 minutes to complete.

If you have any questions please feel free to reach out to us:

ask@exitadvisory.co

or give us a call directly on 1300 133 540.

Exit Advisory Group is a certified Value Builder. We belong to a global community of advisors who are the world’s leading thinkers in the area of building company value, mergers and acquisitions. Having access to this network provides enormous benefits to our clients.  Over 30,000 businesses have now benefited from the Value Builder SystemTM, and we continue to share international best practices, case studies and learnings from this global collective.

Considering Retiring In The Next Few Years? Do You Have An Exit Strategy?

Your business has supported your family, supported your dreams, supported your employees and has made a difference to many lives.

Let’s face it – you’re still in business so you’ve obviously done a lot and your business has proven its worth over many years.

Whether you are looking to retire to spend more time with your family and living your dreams, whether you are looking to retire because you’ve always had a goal retirement age or whether it is simply time to hand the reigns to the next generation, the fact is – you’ve decided to retire.

How carefully have you really considered your business in that decision?

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Negotiation Secrets From A Successful Exit Strategy

How bold will you be when it comes to selling your business?

Dan Martell was willing to go big! In a recent interview with John Warrillow, Dan explained how he invited 5 CEOs, from likely acquirers, into a competitive bidding process for his company. His success rested wholly on one thing…Knowing precisely who his likely acquirers were.  

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10 Reasons You Should Use a Business Broker When Selling

Much like selling a home, your business likely to be one of the largest sales you will attempt. It is also highly likely that you will not be an expert in business sales, in which case, you should certainly turn to a specialist business broker.

Following are ten compelling and measurable reasons to use a Business Broker in the sale of your business.

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Thinking of Leaving Corporate To Start Your Own Business?

Are you tired and frustrated with the corporate world?

Sick to death of the moving goal posts, the politics, and the elusive bonuses that often do not materialise because an unrelated department has not performed?

Do the ‘corporate values’ feel more like a repetitive mantra without any substance?

If you answered yes to any, or maybe all of the above, never fear – you are in great company. Thousands of Australians every year leave the (seeming) security of a corporate job to become their own boss.

And I was one of them.

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