How do I make my business valuable?

How do I make my business valuable

Every entrepreneur ponders this question at some stage in the journey. After all, the difference between building a valuable business and having glorified self-employment is the creation of generational wealth.

If the carrot of generational wealth doesn’t work, then you can think about the stick instead. If a business cannot be sold, it actually becomes a major headache to deal with later in life. It often needs to be shut down, causing great heartache in the process and impacting the lives of loyal staff members. After so many years of blood, sweat and tears, no entrepreneur deserves that.

Exit planning is an important part of the journey and one that is frequently neglected. If you don’t have a business of value, then many of the other steps in exit planning won’t help anyway. It all starts with building a business that can stand on its own feet and receive an attractive offer price.

But what does a valuable business look like?

What makes a business valuable?

Here are some of the characteristics of a valuable business:

  • The owner works on the business, not in the business. There is a team of people running the day-to-day operations and the owner is able to take meaningful breaks from the business without a negative financial impact.
  • There is a reasonably broad range of clients and/or products, which means that the business isn’t reliant on one or two key contracts or relationships.
  • There is a track record of success and a clear strategy in place to continue driving growth, preferably with the existing business still having room to grow so that the plan isn’t reliant on risky new initiatives.
  • There are systems and tools in place that allow the business to scale, while maintaining adequate levels of control over financial and operational processes.
  • There is a proper financial reporting system in place, with all financial statements and tax returns up to date.

There are other important concepts, of course. The valuation multiple is heavily impacted by the country of operation, the sector and the prevailing macroeconomic circumstances. These things are difficult for an entrepreneur to easily change or plan for.

By accepting that there are factors beyond your control, you can focus on the factors that are within your control.

All of these characteristics are difficult, multi-year projects. We may as well focus on the first one, which is perhaps the hardest of all.

Control Freak

Always ask yourself: should I really be doing this task?

As entrepreneurs, we are our own worst enemies. By nature, we want to do everything and touch as many elements of the business as possible. At an extreme, we are control freaks who just can’t get out of the way.

This tenacity is critical to success in the early days, yet it can be highly damaging as the business grows. It’s really quite simple: if you aren’t prepared to let go out of the business over time, then you have no chance at all of building something that can be sold.

Even worse, you aren’t giving yourself a shot at taking meaningful holidays, or perhaps having a professional management team in place one day and playing a non-executive role in your retirement while collecting dividends and spending time with your grandchildren.

Scaling your time and working yourself out of the business isn’t a sign of laziness or weakness. In fact, it’s a sign of entrepreneurial strength. Starting a business and finding success is difficult. Creating lasting value is the biggest challenge of all.

You have to start somewhere, even if it means taking your most mundane tasks and outsourcing them. Even better, find a way to automate them. As you free up that time, you’ll quickly realise that it is a liberating experience that gets exponentially better and more enjoyable as you free up more of your time.

Being addicted to scaling your time is probably the most useful addiction on the planet for any entrepreneur.

Be militant in defending your headspace

If you’re going to build a valuable business, you need the headspace to do it. Entrepreneurs tend to have unusual lifestyles with strange working hours and highly curated social circles. This isn’t by accident.

The “rules” that you’ve always thought apply to people don’t apply here. If making your bed in the morning energises you, then do it. If it starts your day with irritation, then don’t. If you need to wear similar clothes every day to take another choice out of your daily routine, then go for it. If you spend more on food because cooking takes effort and convenience options do the same job, then don’t feel bad about it.

The worst possible thing for your headspace is to allow things that should be fun to weigh you down instead. As far as possible, avoid doing anything that you don’t particularly want to. When you take time away from the business, make sure it is energising and recharging you. Do it every week, at least for one day.

If you don’t protect your headspace like this (and your health for that matter), then exit planning won’t matter because there won’t be a business to exit. Even worse, you may not be around to even see that exit.

With clear headspace, you’ll have the creativity to keep moving the business forward. Remember what it was like when you first started, before the little things bogged you down? If you can keep finding a way back to that reality by scaling your time and protecting your headspace, you’re doing exactly what you should be doing to build a valuable business.

Track your journey with our free business valuation tool. If you can start to put numbers to this journey, you can measure your progress in building a valuable business.