Are there any value-adds home care owners overlook that can help maximize the value of their agency?
There are 9 areas to get right before you put your business on the market.
1. Financial performance
Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping. Your history of producing revenue and profit combined with the professionalism of your record keeping is critical. A buyer's first barrier to entry are the business financials.
Stop using your company as an ATM. Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks. Their job is to poke holes - and they will to decrease your asking price.
Know and protect your margins: Understand if your business is a cash suck or a cash spigot. Cash flow is important and the acquirer is looking to pay back his investment within 2 to 3 years.
2. Switzerland Structure
Switzerland structure refers to keeping a business neutral from over-reliance on any one person or group. How dependent is your business on any one employee, client, or referral source. Ask yourself this: what would happen to the business if they left? You need to diversify your employee, client, and referral base.
3. Recurring Revenue
The proportion and quality of automatic, annuity-based revenue you collect each month. (Revenue that flows in at regular intervals during the year typically, on a monthly basis.) Benefits of recurring revenue, such as predictable cash flow add an increase in a company’s valuation.
Understanding your Life Time Value (LTV) of your client is important.
4. Monopoly Control
How well differentiated is your home care business from competitors? Add something to your differentiator that your competitors cannot claim as doing themselves.
5. Owner Dependency
How your business would perform if you were unexpectedly unable to work for a period of one to three months. This is the second most impactful factor to the value of your business just behind the history of cashflow and profitability.
6. Human Capital
A measure of the talent of your team: EOS (Entrepreneurial Operating System)
- Get the right people on the bus
- Get the right people in the right seats
- Get the wrong people off the bus
- Look for the leaders. You could have the greatest strategies in the world but without the right leadership, the business won’t get very far.
Recruit > Motivate > Retain > Evolve (Promote)
7. Customer Capital
How does your business look to a customer today? Are you conducting surveys consistently to 100% of your client base?
- How strong is your agency relationship with your customers?
- Is your agency an integral part of your customers’ success because the products/services are unique?
- Are these relationships deep, long-term, and contractual?
- Are the relationships delivered in a consistent, reliable recurring fashion?
- Are most of all are these relationships transferable? Meaning can anyone in your organization deliver the high quality of care and management without fail?
If you answer YES to all of these questions, you have strong Customer Capital.
8. Structural Capital
The business infrastructure aka: Your Policies, Procedures and Standard Operating Procedures or SOP’s.Basically, it takes what exists in your brain and turns it into a transferable form. These are the best practices that can be purchased and repurposed.
Your knowledge should be well documented and transferable. Making this knowledge company property ensures that if your talent walks out the door the knowledge they house doesn’t walk out the door with them.
9. Social Capital (or “Social Operating System”)
This represents your culture, your brand, the way your team works, the rhythm of the day-to-day operations and communications and the way you communicate with customers.
Beware the 5 Ds
In closing, according to International Business Broker Association (IBBA) 80% of business listed today do not sell mostly because they are not “transferable” or attractive to an acquirer.
And out of the 20% that do sell. . . 50% of those business list because of one of the “5 D’s”:
- Divorce
- Death
- Disagreement
- Disability
- Distress
It’s popular to think of business valuation as an exact science. However, an owner’s readiness to exit plays a significant role in the overall value of their business. Being prepared to exit at any given time can pay off when it’s time. To do this, an owner should start by considering all of the drivers that add value now to set up for a successful exit later.