Building Business Value
Before I begin to work with a new client we have a conversation about business purpose. The question is “Why are you in business?”
As you can imagine there are many answers depending on age, beliefs, what the business does.
The most common answer is: “I want to build my business to allow me to exit having built it successfully. In essence this is building a business for wealth creation. Let’s talk about financial freedom for a moment.
What does Financial FREEDOM Mean to You?
The bullet points below are some answers:
More time to do the things I want to do
Spend more time with family and friends
Ability to give and or support others
It means lots of things to different people. Let me show you how you can think about your business in a new way. I have used these principles to build my own businesses as well as my clients businesses.
Note: Once you exit your business for financial freedom, it’s not the end just the beginning as you will find lot’s of other things to do. For me it’s sharing my knowledge of having done it. My passion is business. The fees is earn are a by-product of what I do, not the reason I do it.
Step 1 Define Your Purpose
To begin you need to define your purpose. A simple purpose for wealth creation could be:
To build my business to sell it for £5,000,000 in five years.
The purpose above is a good start. Yours may be different, bigger, smaller that’s up to you.
Note: If you build your business to sell in five years time and decide not to sell it, that’s allowed. Because you are setting it up for sale, it will be in a good place to run and draw down wealth. You are going to build a money making machine that is automated, this is the purpose of this article.
The purpose now becomes the effect we are going to deliver. The thinking behind the process is cause and effect. We have the effect (the purpose), we now need to work out the causes that will deliver it.
The next step is to work out the CRITICAL SUCCESS FACTORS these are the next set of causes that will deliver the purpose. You can see this more clearly in the diagram below.
The critical success factors are:
1. Growing Customers
A defined process that adds (A) quality customers to your database with growing sales. This adds value because your buyer can sell their products to your database and sell your products to their database. This is a quick win for them.
Creating processes and systems that delivers automated lead generation, sales conversion and a growing customer database can be a challenge. There are more causes to work through to complete this critical success factor. More on this below.
2. Growing Profits
Growing profits that are predicable and sustainable is the key. This is the most obvious critical success factor and again can be a challenge if the right processes and systems are not in place.
You can workout a quick business valuation by multiplying your net profit by a factor. For example a profit of £200,000 x a factor of 5 = valuation of £1,000,000. The multiplier will depend on your business type. Some businesses have multipliers of 10 and more.
3. Processes and Systems
Imagine if you went on holiday for six months and came back wealthier than when you left. Having processes and systems in place, run by you team will deliver this. It may sound unbelievable if you are a small business owner doing everything, but you can achieve it, if you have the drive and ambition. If you are a larger organisation it’s a case of working on your processes one by one. Start with the processes that will deliver the greatest results first. I have a process and system inventory if you are interested. Go to my help desk and ask for the file. I will email it to you>
Adding Real Value
The three critical success factors above will add real value to your business. A potential buyer will buy your growing customer database. It has real value for them.
Your potential buyer will buy your business that delivers predicable and sustainable profits. For example if he/she buys your business for £5,000,000 and it delivers £1,000,000 net profit per year, that is a ROI of 20% and they still own the asset.
Now it’s all well and good to buy a growing customer database and sustainable profits, but it’s no good, if the business fails due to your leaving it. Having robust processes and system in place operated by a team of people that are being managed by a leadership team is required to complete the purchase. This will give the buyer peace of mind that his investment is safe as it can be.
Step 2. The Big Picture
The three critical factors above is not the full story. The next stage is to work out the causes for each of the critical success factors. If you have read this far and are interested in the next step download my Business Process and Systems Module. This will show you how to do it. You can download it without giving away your details. No catches, it’s just me giving back.
About the author: Bob grew a successful construction company from 1990 to 2005 and have been a successful business coach for the past 12 years. You can learn more about Bob and his process at Freedom Business Coaching
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