Did you know the more predictable your business is, the more valuable your company is?
That’s why you want to run your business like you plan to sell it. Because then you’ll be able to make decisions that will increase the predictability and value of your business.
The key factors are:
1. Financial performance: Top-line revenue and bottom-line profit and how accurate those numbers are. Cashflow: get paid in advance so that growth is funded by customers and your working capital requirements are low. Automate payment processing.
2. Growth potential: How predictable your future streams of profit are. A buyer is not buying your past. They are buying their future. They care about scalability because it’s a good predictor of their ability to grow the business.
3. Independence: How dependent is your business on specific customers, employees, and suppliers. Do they come to you as the owner for decisions? Is company value dependent on you being there? Systematize and document processes to reduce dependencies.
4. Recurring revenue: Increases predictability and lifetime value of a customer (LTV). The higher the LTV the more you can spend on customer acquisition costs (CAC). Increase the proportion of revenue that is recurring and monitor the churn rate.
5. Differentiation: When you’re different (in a way that matters to your customer), you don’t compete on price. This means you can charge a premium, which increases your margins, which you can spend on marketing how different you are. Ask, “Does it make us different, and do customers care.”
6. Customer satisfaction (net promoter score): “How likely are you to refer a friend or colleague?” It’s a proven predictor of the future stream of profit. Very high scores indicate the business will grow faster than the economy.
To increase the predictability and value of your business, focus on these key functions: financial performance, growth potential, independence, recurring revenue, differentiation, and customer satisfaction. That way you’ll have options – you can keep it and scale, hire someone to run it for you, or exit when you’re ready.