For many roofing contractors, a successful final chapter of their business is to transition or sell it to a new owner so they can retire comfortably. This is a critical phase, as most contractors fail to sell, and most end in liquidation for around 10% of their book value.
Contractor owners reinvest their profits back into their business to the point where, on average, they have over 70% of their wealth stuck inside their illiquid business. This investment is needed for enjoyable retirement.
Look at your current stock portfolio. I would imagine you’ve been advised to not have such a significant concentration in one stock. Most likely you have been prudently directed to diversify your investment portfolio in multiple liquid assets. But as an owner you have a major concentration of wealth in an exceptionally large illiquid asset: your business.
This defies all the principles of financial planning. But there’s one positive in this situation — you have the power to make changes.
How would you like to:
- Increase the possibility of making your business salable?
- Increase the multiple that you can expect to receive in a sale transaction?
Now is the time to think about a long-term strategy with the eventual exit in mind.
Most business owners focus primarily on profit. While that is a key component to valuing a business, there isn’t much effort focused on the “multiple” that would be applied to the cash flow. They simply surrender to what the “market” will offer.
As I stated earlier, you have the ability to control your largest single asset. There are several components that comprise the multiple that is applied to your cash flow, including market and economic conditions. There’s also an intangible component closely related to your business.
Collectively, these items create a “risk” to the buyer. Your job is to minimize that risk so that a buyer feels comfortable knowing that they’re buying a business that’s a sustainable entity with predictable returns.
A recent study revealed that by implementing a few attributes to your business, you could increase the value of your company by as much as 71%. Through a statistical analysis of 6,955 businesses, researchers found that companies that achieve a “Sellability Score” of 80-plus out of a possible 100 receive external offers to buy their business that are 71% higher than what the average company receives.
The strength of company performance is focused on eight attributes that drive the value of your company:
- Financial Performance: Your history of producing revenue and profit combined with the ability to accurately capture financial data.
- Growth Potential: The likelihood to grow your business in the future through acquisition, geographic expansion or new product offerings.
- The Switzerland Structure: How dependent your business is on any one employee, customer or supplier. If you lost a major customer, what would that do to your business?
- The Valuation Teeter Totter: Producing constant levels of profitability and cash versus swings during the year.
- The Hierarchy of Recurring Revenue: The proportion and quality of automatic, annuity-based revenue you collect each month. This provides the buyer the ability to generate reliable forecasts. Think of service and maintenance.
- The Monopoly Control: How well differentiated your business is from competitors in your industry. Eliminate the idea of competing on price. Think of Apple products. When was the last time you saw one of their products on sale? They command a premium for their product — and get it.
- Customer Satisfaction: The likelihood that your customers will re-purchase and refer you. Pretty self-explanatory; however, you must get feedback from your customers and not just a “hunch.”
- Hub and Spoke: How your business would perform if you were unexpectedly unable to work for a period of three months. “You” do not want to be your business.
If your revenues exceed $7 million, you can qualify to take a confidential survey to measure your Sellability Score and discover how you’re performing in the eight key categories. In two days, you will receive a customized 20-page report with your score.
From there you can begin your journey to increase the value of your largest asset to sell to your family, managers, or competitor for your eventual retirement. Get your Sellability Score now: https://bit.ly/beaconvaluation.