To increase the value of your business an understanding of the 8 key value drivers is essential. The first key value driver, Financial Performance, was discussed previously. Now we address the second key value driver, Growth.
Increasing the likelihood for growth and the anticipated growth rate will increase the value of your business. It will also attract a greater number of potential purchasers for your business.
It is one thing to say that your business has growth opportunities. It is another thing to actually demonstrate that your business is scalable. Showing that you had a growth plan in place and that you successfully implemented that growth plan gives your current growth plans more credibility. This adds tremendous value in the eyes of a potential purchaser.
If you want to increase the value of your business and have never prepared a written growth plan, do one today! Prepare a written growth plan for the coming 1, 3 year and 5 year periods. If you want your future growth plans to be credible, you must document your current growth plan, the implementation strategy and the results. You should also obtain an independent business valuation today so you can benchmark the future value enhancement results.
Growth = Size and Scalability
Larger businesses are perceived to be more substantial and stable organizations than smaller companies. These businesses have found a way to grow beyond the efforts of the owner(s) and become less reliant on the owner(s).
Investors consider smaller companies to be riskier than larger organizations and this additional risk manifests itself as a lower valuation multiple being applied to the company's annual cash flows/earnings.
A company with a scalable business model is much more valuable. But, does your business have the infrastructure necessary to scale its operations? What are your company's options? Consider the following:
1. Geographic Scalability - applying your business model in another city
2. Cultural Scalability - applyling your business concept in another culture
3. Horizontal Scalability - selling new products/services to existing customers
4. Vertical Scalability - providing existing products/services to new customers
Or, you can turn to The Ansoff Matrix which considers the following four growth strategies:
1. Market Penetration - selling existing products to existing customers
2. Product Development - selling new products to existing customers
3. Market Development - selling existing products to new markets
4. Diversification - selling new products to new markets
The first two items are lower risk options given that existing customers are generally the ones who know and like the business the most and are often pleased to find out that the business offers something else they need. Let's take a closer look at these two options:
Existing Products to Existing Customers (Market Penetration)
Consider a hardware store with a key cutter hidden off in the corner. Despite the huge mark-up on cutting keys, sales are very low because nobody can see the key cutter. By moving the key cutter up front beside the cash register customers begin to see the cutter and realize that the hardware store cuts keys. Not surprisingly, many more keys are sold to existing customers, which increases the overall revenue per customer.
New Products to Existing Customers (Product Development)
Consider a BMW dealership whose typical client is an affluent family man in his forties. After saturating the market for wealthy forty-something men, the dealership decided to think of the customer as the financially successful family rather than only the patriarch. Instead of trying to sell more BMWs into a market of diminishing returns, the owner bought a Chrysler dealership so he could sell minivans to the spouses of his BMW buyers - a new product to the existing customer.
Existing and loyal customers trust and respect the business and its representatives. Identifying and meeting a separate or supplemental need for those customers will result in sales growth and value enhancement.
Would you like to know where your company ranks under the Growth value driver? That's where the Value Builder Score comes in where business owners complete a 13-minute questionnaire to receive their Value Builder Score out of 100. http://score.valuebuildersystem.com/en#started
Empirical evidence shows that companies with a Value Builder Score of 80 or more receive offers that are 71% higher than the average business! Simply put, improving your company's Growth Potential will increase the value of your business.