As you will recall, I recently spoke with 2 Yorkshire Companies that have increased the value of their business. In part 1 of this blog, I spoke with Chris Shaw from Overview Studios who explained how the Value Builder System helped to increase the value of his business.
In part 2 of this blog you will hear from Andrew Park from Swan Energy and how he deliberately structured his business based on one of the Value Drivers – Recurring Revenue.
Everyone wants a valuable business. Whether it’s to sell or not. But how do you find out how valuable it is and what you need to increase its value?
The 8 Drivers Of Business Value
I work with the Value Builder System which gives you a comprehensive assessment of your business, helps your company to grow, and helps you to achieve your personal goals. The System has been proven to increase the value of a business by up to 71%.
As part of the Value Builder System there are 8 Value Drivers of Business.
The value is measured from the eyes of a buyer of your business. You might be thinking that you’re not selling your business but don’t stop reading, there are important reasons as to why the drivers take a buyer’s point of view:
- If you’re not even thinking of selling now, you may well want to sell your business sometime in the future. The more attractive to the buyer, the more £value you are likely to get. Also, your exit is likely to be faster and easier;
- If you are not considering selling it, having the business built to sell will definitely increase the profit available to you. Also, importantly you will have more time for yourself and much less stress than you have now.
The 8 value drivers are “joined up” in an assessment algorithm that gives you a Value Builder Score out of 100. Your score is compared to the other 40,000+ assessments completed by business owners like you. That will give you an EBITDA profit multiple, allowing you to get a valuation of your business. To get your score and valuation, follow this link.
The 3 Most Influential Value Drivers
Of the 8 value drivers, there are 3 that influence the score and valuation more than the others. They are:
Financial Performance: having a history of increasing turnover and profit, a reliable method forecasting future income and a reliable accounting system.
Recurring Revenue : having a business model where customers subscribe for your products or services and make regular payments.
Hub and Spoke: organising and operating the business where you, the boss, aren’t in the middle of it. The business can work without you when you have standard operating procedures, an organisation and management structure and an engaged workforce.
Real Life Stories
The best way to emphasise and demonstrate the importance of the 3 drivers is to share with you the stories of 2 Yorkshire Business Owners.
Chris Shaw and Andrew Park are owners of Yorkshire based companies whom I’ve had the privilege to work with recently to help them increase the value of their businesses.
Andrew Park – Swan Energy
“I built my business on the Recurring Revenue model as endorsed by Built to Sell: Creating a Business that can Thrive without you, written by John Warrillow, the founder of the Value Builder System. Swan Energy, provides consultancy support to large organisations that are obliged to report under the EU Emissions Trading Scheme (EU ETS). As the scheme requires annual reporting and external verification, we work with our clients throughout the year in readiness for the external verification visit. We charge our clients on a quarterly basis over a typical 3 year contract. I focus on recurring revenue because it fits my requirements for the following 6 reasons:
1. Predictability: My long-term contracts and regular invoicing lets me plan what my business needs in the future. As the business has grown, I have been able to plan recruitment and systems changes.
2. Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. The EU ETS reporting period covers a calendar year but the verification audits all happen at the same time of the year. Our working style with its clients is to spread the work over the year and minimise the ‘year-end rush’. Its recurring revenue model matches income and costs throughout the year.
3. Improved Valuation: Recurring revenue boosts the value of any business. Greater certainty of future income is a massive benefit for me. Obviously having a pipeline of predictable income removes the stress of where next month’s income comes from. That feeling is really valuable itself.
Results from over 40,000 Value Builder Assessments show that increasing the proportion of recurring revenue drives up the sales multiple. A typical SME gets around 3.6 EBITDA multiple whilst a similar business with over 75% recurring revenue gets about a 4.1 multiple.
4. The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. The classic example is Amazon Prime. I have noticed some clients ask for additional services, still involved in environmental reporting. Also, as clients add new sites to their EU ETS portfolio they always come to us for additional services.
5. The Sale That Keeps On Giving: Unlike the transaction business model where I would have to stimulate demand through advertising to get customers to buy, with a subscription-based model, I sell one subscription and it keeps on giving quarter after quarter. Combined with a top level of customer service, we have a very high client retention rate, as evidenced by our recent Net Promoter Score of 67.
6. Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. In a B2B relationship like our’s the research knowledge is more focused on knowing the client better and working with them throughout the year. It’s true, People buy from People. My business model builds really strong relationships and a deep understanding of what my customers need.
So to sum up, I’ve found that working with Peter and the Value Builder System has enabled me to build a more valuable and sustainable business.”
The Power Of The Value Builder Assessment
Chris and Andrew both took the Value Builder Assessment at the beginning of our relationship. They both want to have a business that they have the option to sell sometime in the future. They also want to make sure there aren’t any silent killers in their businesses – issues or problems that lie under the surface and are making the business less efficient, more stressful and less valuable.
The Value Builder Assessment gives you an objective outside view of your business through the eyes of a potential buyer. It has been completed by over 40,000 business owners just like you. It helps you check how you’re doing and allows you to see where there are growth opportunities as well as showing how you could reduce the business’s reliance on you and where to focus your efforts.
To see if you have a business Built to Sell, follow this link. It only takes 13 minutes to answer the questions and get your score out of 100 and you’ll be well on your way to increasing the value of your business.