What Drives Business Value?

Oct 3, 2022

What Drives Business Value?

As I am sure you have recognized thus far, at Denver Business Coach, we are all about driving up the value of your business by driving down the risk areas of your business. When you are thinking about building a valuable business that you can one-day exit successfully, think of these 8 areas:

Financial Performance

This is in reference to your history of producing revenue and profit combined with the professionalism of your record keeping.

High-Risk Businesses will use their business account as their own personal spending account, they keep track of their finances themselves, or just hand over a bunch of receipts to their accountant. Rarely if ever do they perform an audit on their own financial records.

Growth Potential

Your likelihood to grow your business in the future and at what rate.

High-Risk Businesses do not have an infrastructure set up for scale, meaning that if 5x amount of business was to walk in the door tomorrow, they could not handle it. They have tapped out the market and will have a tough time scaling geographically.

Switzerland Structure

How dependent your business is on any one employee, customer, or supplier

High-Risk Businesses get over 15% of their revenue from any one customer. They have one employee that is a rockstar, and it would be very difficult to replace that person if they left. The same thing with anyone supplier – if the supplier went under, the business would desperately struggle to stay alive.

Valuation Teeter-Totter

This refers to whether your business is a cash suck or a cash spigot

High-Risk Businesses viewed through this particular lens will front the cost of delivery of service/product for the customer, then collect what they are owed on the backend of delivery. They are chasing down payments after delivery rather than collecting prior to or during delivery

Recurring Revenue

The proportion and quality of automatic, annuity-based revenue you collect each month.

High-Risk Businesses here are constantly looking for new sales every single month, with very little predictability when it comes to their accounts receivable.

Monopoly Control

How well differentiated your business is from competitors in your industry

High-Risk Businesses have a tough time communicating who their target market is, and why they are the top choice compared to competitors. They do not have any regular “innovation” processes built into their business to set the standard, rather they are chasing the standard.

Customer Satisfaction

The likelihood that your customers will -repurchase and also refer you

High-Risk Businesses have low “social proof” when it comes to experiences, and a low Net Promoter Score (NPS). The experience their customers have is nothing really to write home about, and therefore they will not share with their network.

Hub & Spoke

How your business would perform if you were unexpectedly unable to work for a period of three months

High-Risk Businesses are overly dependent on you as the owner to pick up the slack when there is slack. If you were to vacation, your business will dramatically struggle. Everything operationally flows through you as the business owner.

When you are growing your business, look to these risk areas and mitigate them. You will be working towards having a valuable business.

To speak with a coach for more ways to bests mitigate your business against these risks, click the button below to schedule your intro call

Schedule Your Discovery Call