16 Ways to Boost Your Valuation

As Founders we all want to maximise our future valuation, right?

When the time comes to sell (or to raise some cash via equity) you don't want to find yourself at the short end of the stick, you want to get the maximum value you can for your business. A good valuation means you get the best financial return relative to the amount of you time put in.

Better Valuations = More Money in Your Pocket (Eventually)

You're going to put in the same amount of time into this business in the next 3 years, whether you do things to improve the valuation, or you don't. It's all about how you decide to spend your time and what you prioritise.

I'm not suggesting you prioritise everything I talk about here, and you may have no desire to sell your business. But at some point, perhaps you'll be looking to bring in an investor to take some chips off the table, or sell some equity to management. What if you have major life change and need to get out quickly?

The valuation of your business will determine what you'll get in that process and a business with a better valuation has more buyers to choose from and gives you more options - regardless of your outcome.

So there's no time like the present to start working on it, why not work on it right now?

What Factors Impact the Multiple a Buyer Will Pay?

Unless you've got a super solid SaaS recurring revenue business model, you're likely to get valued as a multiple of your maintainable EBITDA (not of revenue). So, as a super rough guide for what sort of return to expect depending on your current business, consider that:

• A business that gets 2-4x EBITDA is likely to be considered a much higher risk profile. Lowish profitability, labour intensive, localised market. This sort of business is often hard to grow, and the owners are probably quite involved in the day to day running of it and so on. It's going to be attractive to a relatively narrow pool of buyers who already have skills in the industry and perhaps an existing business that does something similar who would buy it as a bolt-on.
• A business that gets 5-6x EBITDA is likely a pretty mature business, probably has at least 1.5m+ in EBITDA. A good leadership team, solid and growing, profitable, and a decent size. Any buyer will see opportunities to grow it quickly as well as some cost synergies where they can increase their return quickly. It can be attractive to a wide pool of buyers including some outside the home country.
• A business getting 7-10x EBITDA is generally a high growth business in a hot industry. It is likely to have very sticky customers, serious competitive advantages and market share. Likely they have high profitability, a very scalable model, serious tailwinds, and strong continuous growth. Businesses with getting 7-10x will have material revenues, be very cash generative, and have an excellent leadership team with a history of growing businesses like this. It's not easy to get 7-10x, you need some scale and your sale timing needs to be good.
• Businesses that gets north of 10-15x EBITDA are platform businesses. These kinds of businesses have serious players in their c-suite, as well as all the previous things in the 7-10x range are there, but this is special in particular as people would see this as a business they can bolt things onto rapidly because of its maturity and capability.

Now this isn't a perfect model by any means, so don't shoot me as there are plenty of exceptions to this guide above... but the goal is not to show you what the exact return looks like, but rather the relationship between the valuation and the confidence that your business and business model builds in its buyer (which therefore reduces their risk and increases how much they're willing to pay).

16 Practical Ways to Improve Your Future Valuation

There's so much you can do to create a business that's worth more to a buyer or investor. But to get you thinking, here's 16 different ways you can improve your future valuation.

Business Model

• Build a material competitive advantage that's hard to compete against - If you want to learn more about how to build a competitive advantage, check out our previous edition here.
• Make sure your Flywheel is clear and that it generates scalability, momentum and larger market share so all your efforts propel your growth. I discuss the Flywheel here.
• Build products, services, and value propositions that ensure the business still thrives when there are market headwinds or economic downturns 
• Address your major constraint to scale - remove it so you can keep growing. Check out how to break free of your constraints here.

Financials

• Consistently grow revenues at 20% or better
• Consistently grow EBITDA at 20% per year or more (the actual EBITDA $, not your EBITDA %)
• Work hard to get your EBITDA margins above 30%
• Build or amplify recurring revenue streams

Leadership and Culture

• Get a clear growth strategy in place (check out the ScaleUps Roadmap course that helps you do this)
• Hire a capable leadership team who've ideally been to the stage you're trying to get to in 3 or 5 years time. They need to be capable of taking decision-making-load off you. Get them aligned with you on EBITDA growth and tie them in with a good long-term incentive scheme.
• Get yourself out of the day to day running of the business so you can focus on customers, cash, product development, strategy, the market and growing the business over the medium term.
• Build a culture of empowerment, development, inclusivity, high performance and collaboration in a way that scales. That way you'll maximise the contribution of great people you bring into and up through the business.
• Upgrade your personal operating model - the business will not outgrow you. Invest in courses, advisors, assistance, knowledge - you've got to keep growing and stepping up or the business will falter. Be vulnerable enough to know when you're hitting your limits and find a way to ensure you have people around you that challenge you, and that fill your gaps allowing you to focus on your strengths (chat to us about Growth Mentoring or Advisory Boards)

Rhythms, Systems, Operations

• Build rhythms and systems for execution that align every team member to the top priorities as they change, teach them what success looks like for them. Make sure your rhythms have an efficient way of managing objectives, KPIs, planning, reporting, meetings, information flow, fast decision making and more (we focus extensively on this in Growth Mentoring or Advisory Boards).
• Build systems, processes and automation that enable your revenues and gross margins to grow at a faster rate than your fixed costs i.e.. your wage bill grows more slowly than your gross margin so your profits increase over time.
• Harness technology cleverly to deliver exceptional customer and team experience (I discuss how to do this here)

Okay... Amazing. I'm Inspired to Act. So What Now?

If you've read through all of that, I'm sure you have a pretty solid idea on how you can boost confidence in your business. So now its time to figure out how you can apply this to your business, to start boosting your valuation. Grab a pen and ask yourself this question:

What are three things, inspired by this list, that I can prioritise in the next 12 months to 3 years to help me increase my valuation, attractiveness to buyers and investors, and therefore options for exit?

Want to take it further?

If you'd like to step back from your business and do some in-depth planning on how you can maximise your valuation in the next three years worth of effort, you should join us at the next ScaleUps Roadmap program. We help you build a kick-arse growth strategy, optimise your business model for scalability and valuation and much more! Check out the program here and register your interest now.