3 Essential Business Principles That Will Enable You to Retire Comfortably
I ask them: “So what will your company look like when its finished?”
You can imagine the sort of answers I’ve had to that question…
But for some business owners, the end is clear. They would like to exit and retire comfortably.
The focus can shift from the income the company is generating to how much it’s worth. So how can you maximise the value of your company?
It’s all to do with your earnings before interest, taxes, depreciation and amortisation (EBITDA). In the UK, on average companies are valued between 1 and 2 x EBITDA.
The formula for EBITDA is your revenue – expenses. However, companies that have some basic principles in place can expect to be valued much higher.
Principle No. 1 – Ensure you have a crystal-clear Vision, Mission, Purpose and Culture.
Its vital that this is not just a paper exercise, but embedded as a belief in the workforce.
Principle No. 2 Growth plans are in place and used every day.
Have Five Year, Three Year, and One Year plans in place, with financial forecasts aligned to growth strategies. You should be able to demonstrate exactly how you expect the company to be trading in five years’ time, and you should have demonstrable strategies in place that will create that growth.
Principle No. 3 – Have an “Operation Manual”, and systemise your business.
80% of everything you do can be systemised. The other 20% will be humanised.
A “system” can be as simple as a checklist and as comprehensive as full-type rating for a piece of machinery or software.
Why do these principles matter?
Imagine meeting with a prospective buyer for your business and being able to say:
“Look – this is our company vision, mission, and culture. Put us to the test: Go and talk to any member of our team and they will tell you what we are building and why they are happy to be part of that journey.
“Look – this is our five year growth plan. This is how much money the business will be making in five years’ time, and these are the growth strategies that will get us there.
“Look – here’s our live operational manual. This is a living document that means if I were to walk out this door today and hand this manual to you, you would have everything you need to run this business smoothly.”
These simple principles can increase the value of a company by many multiples of EBITDA, from 2x to as much as 5x.
But at ActionCOACH, we have worked with companies to help them achieve far higher purchase prices than this, as much as 44 x EBITDA.
So what’s your exit strategy? Have you a plan in place that will enable you to retire comfortably?
If not, get in touch, and we’ll get there together.
