A business owner should have an end goal, a destination, in mind for when they no longer want to be running their business. Often the goal is selling the business when they are ready to retire. Generally, they will talk with a business broker who arranges the sales of businesses. A broker will share ways to increase the value of your business.
One of the most important things you will learn when you talk with a business broker, is how much the owner works in their business is inversely proportional to how much that business is worth.
In other words, the more the owner works in that business, the lower the value of that business. When coaching our clients, we focus on creating those systems that enable the owner to empower their team to run the business. This allows the owner to step back from the business.
By creating a business where it is possible for you as the owner to step back, it will increase the value of your business.
The value of a business is generally identified as a multiplier of the revenue. It is one of the most common ways of identifying the value. If for example, all/most of the revenue that comes to the business is due to the owner in a business where the owner must be there, when it comes time to sell that business, you’re not selling a business, you’re selling a job. The next person who buys that business is going to wind up doing that job. In that situation the multiplier of what the business is worth as far as revenue is probably pretty low, likely less than 1. So, if you have revenue of $100k, the business may only be worth $50k.
Conversely, let’s say you have a business where the owner is not doing it all. They have employees who are working in the business providing all the product/service delivery. They have systems in place so that the product/service is delivered consistently every time. All that is required from the owner is to maybe manage the team for an hour a week.
Now you have a business owner that is not selling a job but actually a business that is creating profit for the next owner. In that instance, if you have a $100k in revenue, and you go to sell it, that $100k in revenue has a higher multiplier to establish the value of that business. It could be as high as 10 maybe even 15. So, with $100k in revenue, this business could be worth a million dollars. Maybe even more depending on the industry.
At Wasatch ActionCOACH we work with you to increase the revenue of the business, but also increase the value of your business. We help owners create the systems needed to consistently deliver their products/services. We help owners develop and empower their team to take on more responsibility so the owner can work towards stepping away more often. They have the freedom to take those family vacations they haven’t had time for. When owners understand that by stepping away from the day-to-day activities of the business, the value of their business increases, it can also remove guilt they feel about taking time away.
We understand that it can be a challenge for owners to step away from their businesses. They may feel that things will not be done right without them there. They may feel guilt when they do leave for vacations. There can be this ‘entrepreneurial’ mindset that you must work hard nonstop for the business to be successful or for them to be considered a successful entrepreneur. However, that is a fallacy. You do not have to stay in the grind forever to be successful. It should not be a badge of honor that you work 80+ hours a week and haven’t taken a family vacation in 5 years.
It is important to us to reeducate business owners and help them work on removing negative mindsets. At ActionCOACH we believe that a balanced work-life is possible (and important) for business owners. And we will work with you to increase the value of your business, but also improve your life overall.
If you are a business owner who:
- has a terrible work-life balance
- feels they need to be at their business every day for it to be successful
- wants to ultimately sell their business
- wants to increase the value of their business
Give me a call. Send me a message. Attend one of our workshops or lunch-n-learns. Schedule a complimentary coaching session. Our mission is to ‘Improve all lives along the Wasatch Front.’ We’re here to help you increase the value of your business!