Kristin LuckWithout understanding what drives business valuations, business owners seeking to sell their company risk leaving money on the table or even jeopardizing a sale altogether.
So what are the right valuation drivers to focus on? I recently discussed my take on the topic on the Jeff Bullas Show.
First, having a deep understanding of your own business performance is paramount in preparing a company for a sale. Robust systems need to be in place to track key performance indicators. In my experience, many companies, even those with significant revenue, often lack basic data about their own business performance. Understanding the different business levers that maximize a company's valuation is critical, and it's all driven by data.
When I'm working with a company on pre-M&A optimization, I often meet resistance to utilizing data to tune business performance; "We haven't ever tracked [insert metric] before and we managed to get to [insert revenue number]." It's important to remember that, even if the business has reached some level of scale, it's IN SPITE OF not utilizing business data to drive growth, not BECAUSE OF. Implementing a CRM/MAP system (I'm a big fan of HubSpot) and regularly monitoring key performance indicators are two foundational steps in building a scalable, saleable business.
It's not just about looking at data for data's sake; it's about the story that data tells you that can be transformational for a lot of businesses.
Next, businesses don’t need to be overly fixated on competitors when looking at growth metrics. While it's important to be aware of the competitive landscape, Founders need to stay true to their vision and focus on their own product development and growth strategies to outpace their competitors.
Download: Your M&A Playbook: Strategies to Boost Valuation Through Key Value Drivers
When it comes to scaling a company to sell, timing is everything. The ideal moment to consider selling is when the business has scaled to a desirable revenue threshold, but the Founder still has some passion for running the business. Waiting until exhaustion sets in can lead to suboptimal exits and difficult earn-out periods after a sale is completed.
Finally, scaling a business requires a different skill set than starting one. Not every Founder wants or needs to scale to a large exit. Entrepreneurs need to be clear about their goals from the outset. Whether you're aiming to create a lifestyle business or you're gunning for a major exit, understanding the end game is crucial in shaping how (or if) the company scales.
Lastly, Jeff and I spent a few minutes talking about AI and opportunities for utilizing synthetic data.
Want to learn more about how to optimize your business growth? Reach out to us!