Understanding Your Business Worth

By Wayne Rivers, Family Business Institute, for International Roofing Expo. 

How to determine if your company will hold its value with you there. 

Construction and roofing firms that have successful businesses, happy customers and predictable revenue are the exception, not the rule. Many companies spend more time putting out fires and lack a vision for the future, resulting in the business having no transferable value. 

What exactly is transferable value? 

In a recent Jim Carlisle blog, he defined it as, "What a business is worth to someone else without the original owner." Transferable value, then, is not determined by how well you run your business, it's determined by how well your business runs without you. That is a critical distinction. Your goal should be to develop your construction firm to the point where it goes on whether you, the senior leader, show up for work or not. It has the potential to become perpetual because it isn’t dependent on only one person. 

The Family Business Institute once had a talented consultant named Julian. Prior to working here, Julian’s father-in-law had sold his company and proposed to Julian, "Why don't you identify small to mid-sized businesses that I can buy, and you can operate?"  

Julian set out to find one or more small businesses that they could purchase and operate in their family portfolio. During his timeline of 18 months, Julian identified 22 businesses considered ripe for purchase. How many offers did they actually make, you ask? ZERO! There wasn’t a single company they reviewed which had grown to be independent of its owner. The businesses simply couldn't stand on their own if that person was out of the picture. 

Julian’s experience led us to identify seven criteria that a business must have in order to exhibit transferable value: 

1.     Customers that are loyal to the company not just to the owner. 

2.     Standard operating procedures (SOPs). 

3.     A unique niche in business which is resistant to commoditization. 

4.     Predictable, recurring revenue. 

5.     A proven plan for growth and profitability. 

6.     Loyal, motivated employees that will stay with the company and the new owner after the previous one departs. 

7.     A super-talented management team. 

If you consider the last two items, what transferable value really comes down to is people. If you have great people, nobody can hold you back. If you don't have great people throughout your organization, that's a constraint, and your future opportunities will be limited. 

Here's a self-test. Take a four-week vacation. If you break out in a cold sweat at the mere thought of being away from your company for a month, that tells you that your business probably lacks transferable value. If, on the other hand, you can take a four-week vacation and your team runs the company seamlessly, that's a great sign! You're well on your way to establishing transferable value. 

Learn more about the International Roofing Expo in their RoofersCoffeeShop® Directory. 

Original article source: IRE