10 Tips Towards Building a Valuable Business
12th March 2019, 10:21 am
Biramis is for business owners who want to make more money, and become financially independent when they retire or exit their businesses. Here, their chief executive, Christiane Hutchinson shares her expertise on how to grow a valuable business.
1. Create a sales process to increase revenue.
- Measure your Leads creation performance: what process or mix of processes have you put in place to create leads? How much does it cost you to get a lead? This is the return on investment on your marketing budget.
- Measure your Leads conversion performance: of those leads, how many do you turn into sales revenue? How many steps and processes do you have to go through to convert? This is the return on activity on your sales process.
2. Create the right MARKET PROPOSITION – keep tweaking!
This is the product or service you offer to clients and customers that must provide them with more value than they pay for.
- If your product or service is both high value relative to cost AND unique, clients and customers will rush to buy it.
- If it is perceived to be of low value relative to cost and the same as other providers, then it will be difficult and costly to sell.
3. Create a consistent margin model
Whether you sell 100 or 10,000 units, hours, pallets, aim to achieve a consistent margin. Some businesses grow in revenue but the margin slips behind, because they don’t have a proper pricing structure that reflects all costs.
- Variable or direct costs are incurred to buy materials or labour in order to be able to supply your product or service.
- Indirect or overheads costs are the costs you incur no matter what, every day, just to be open for business. In order to protect your margin, you must not forget to apportion a percentage of the overheads in your pricing and protect your margin. This way, you can grow and scale up safely.
4. Don’t compete on price – create differentiation
If your product or service is the same as others, then only price will determine the choice outcome. Even strong client relationships erode quickly in the face of a cheaper supplier! The risk is a price war in very competitive markets. You don’t want to enter the war zone.
Be unique in a way that client’s value, not just for the sake of being unique.
Sweat your assets
5. Manage for cash rather than just profit
Cash is king. Entrepreneurs who focus on generating excess cash rather than profit alone usually create more valuable businesses. Profitable businesses can run out of cash….A few cash strategies, apart from obviously cutting costs:
- Negotiate terms with clients and customers: can an option for a meaningful percentage upfront payment justify a rebate? (The value of money today is better than tomorrow)
- Can this ‘meaningful’ upfront payment/deposit cover in full your variable costs or a good part?
- Lease, rather than buy
- Conduct credit checks
- Send out invoices immediately
- Improve your inventory and stock turnover
- Negotiate with suppliers your buying price
- Match debtors and creditors payments
6. Develop IP and grow your business value
IP is the knowledge, experience, tools, techniques, processes, brand that belongs to a business.
Creating IP and innovation MUST improve your competitiveness, reduce delivery costs, increase leverage, simplify training so you can scale up, increase barrier to entry into your market, and speed up growth, and as a result, contribute to build business equity value.
It allows your business to be more than the sum of its parts.
Apply a business wealth creation and value strategy
7. Have an exit strategy in mind
As an Entrepreneur, your purpose is to create a process whereby the value of your company will rise and you will be able to liquidate your investment by selling your shares to either another company, investors, or current management. Integrate this process as early as you can, because it will help your business become a best in breed business on the way. 3 to 5 years prior to exit time is a good time frame to create and execute a business wealth creation strategy. Decide on a time frame, define your value goals, manage for value, be flexible and review as the business grows. The prize for your focus and efforts will be worth it, and much better than if you leave it to a default future and ‘see how things go’.
8. Reduce all dependencies
Start with yourself, as the business Owner. Your business will start growing in value the day when you don’t have to be involved any longer in the day to day.
Apply the same principle across your clients and customers, suppliers, key staff. Dependencies create risk and minimise all the value that you are working hard to create, while your reported performance could still look good on paper. You could achieve volume, profit, but not necessarily value…
9. Align your people
You could have the best strategy, the best processes, systems and policies, but the glue for your business to succeed are your people. You must align their own objectives with your business goals, so your people will grow in tandem with your business. People alignment with the business is not achieved through procedures, but through developing and monitoring personal development plans that will ensure their skills and talent are best applied and recognised in the business. Create the fit, and your business will feel ‘in sync’ as people will all pull in the same direction.
10. Achieve operational excellence
This is achieved when every member of your business can see how value is created for the customer, and everyone is aligned along the delivery process.
- Define how your business creates value for your customers as your core process (standard operating procedure or SOP). This is your high-level spine across your entire business functions. This core process is going to hold together all the various processes flowing from it.
- Every step must either create value for your customers and there is a touch point, OR it is saving time and costs.
Map it all, continuously review and improve….