Having the correct sales and marketing strategies in place can assist not only increasing your profits, but in maximising your Business Valuation. On this episode of the Marketing Strategy Show we discuss the best sales and marketing strategies you need to have in place to maximise the value of your business as well as grow profits, with Craig West, CEO of Succession Plus. You can read an more detailed explanation of what was discussed in our article “Marketing Strategies that Grow the value of your Business” here.
Craig West’s Background
- Has a background in Accounting
- Through his years of working in accounting and working with business owners on taxation and compliance he saw a lot of business owners plodding along, just doing what needed to be done to keep them out of trouble with the tax office
- Craig saw an opportunity as he thought there was a lot more advisors could do to help business owners.
- So Craig completed a Master’s Degree in Capital Gain Tax and Tax Law and started to help accountants advise their clients what tax would be applicable when they sell their business
- In seeing a lot of transactions over time, Craig realised that many business owners were selling their business for the wrong amount, at the wrong time and even to the wrong person. In other words a lot of these businesses weren’t set up to maximise their sale value.
- Craig set up Succession Plus to help them do this.
Basics of Maximising your Business Valuation
- Understanding the basic equation for valuing your business is of vital importance. The basic theory is your net profit times a multiple
- For example a business with $500k net profit and;
- a) multiple of 3x times net profit = $1.5million valuation
- a) multiple of 2x times net profit = $1million valuation
- Net profit is fairly simple to work out (you work out the normal profit then take out any personal expenses) to get the businesses real net profit
- However the multiple is the biggest factor in deciding the value of the business
- Why is the multiple the really important factor? You can improve the net profit by a hundred dollars or even ten thousand dollars but if you can improve the multiple from two to three it will have much more significant impact on the valuation of the business.
- This is a common area people skip over, they spend a lot of time maximising the profit but no time at all worrying about or thinking about risk (the multiple)
- One of the very first things that is important if I’m a buyer, I want to lower the risk. So, we are looking at it from the buyer’s viewpoint not our own, as he/she is the one who is going to buy the business
- If one business has ongoing regular recurring sales to the same customers, that will be far more valuable than the business that has to make a new sale for every dollar that it gets
- Also critical is what does your sales funnel look like? What is your pipeline? . It really is about demonstrating to people (the buyer) that you have got the ongoing ability to reproduce revenue going forward
- So where to start? Begin with an end in mind and identify an exit early on. My view is, as soon as you start, you should know how you are going to exit. Because a lot of the decisions you’re making including all of the marketing and branding and those sorts of things which we’ve been talking about should be focused towards your exit
In Summary
- You need a full review of the business and marketing strategy as well as some tactical marketing if you are considering maximising your Business Valuation. This would help potential purchasers see that there’s a track record that generates new leads and new revenue streams.
- Showing potential purchasers the history and the track record gives a breakdown of the profits and where those profits were spent in the business.
- Begin with an end in mind and identify an exit strategy/strategies early on. My view is, as soon as you start, you should know how you are going to exit. Because a lot of the decisions you’re making including all of the marketing and branding and those sorts of things which we’ve been talking about should begin with your exit in mind
- The other important thing is a lot of the stuff that we do around marketing, around branding and around just generally preparing our business for an exit are just makes smart business sense. It’s not about just an exit strategy.
- Having a good marketing strategy, an implementation plan and systems around your marketing function is going to make your business more valuable but you are also going to make it more profitable, easy to run, less stressful, more enjoyable, more easily transferrable to your son or daughter or brother or whoever it is you want to transfer it to
Resources for maximising your Business Valuation
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