What Are the 8 Value Drivers — And How Do You Start Moving Them?

So when you're thinking about your business and the value, we like to suggest there's 8 factors that drive it. Predominantly though, the main driver is going to be how financially successful your business is. So revenue is a metric. In some businesses and industries, revenue is a factor in determining the value. You know, in the accounting space, for example, sometimes it's a multiple of revenue because it's recurring. which is also a factor if you've got a recurring revenue model, that's a driver of business value. But truly financial success, profitability, EBITDA is really the main metric. And typically it's a multiple of your EBITDA. So if you make $100,000 a year EBITDA times 5, it's a $500,000 business, right? So if you want your business to be worth more money, you have to drive greater EBITDA numbers. But there's, there's other factors. I talked about the type of revenue model. If you've got recurring revenue, meaning that your customers constantly come back, that's a driver of value. If the business is not dependent upon the owner, that's a driver of value. The less dependent it is on the owner, the more likely you're going to be able to sell, the higher the value someone would be willing to pay based on the fact that the business operates without the owner being part of it. You know, I think of my business and I think if I got run over by a truck, would my business succeed? Absolutely. You know, my marketing team would come in, they'd clip out all the videos of me and put someone else's face in here and away we go, right? And that would be the goal. That would be part of the plan. If something happened that I wasn't here, carry on with the marketing, find a new face to do the marketing and do these recordings, which is completely possible, right? Dependence upon other key relationships like vendors. You know, you think of a car dealership. The car dealership's limited somewhat in the value of their business because if something happens to the dealer, like a Ford, like a GM, like a Honda, then the business is really restricted. If they can't get those vehicles anymore, then there's no more business. Key suppliers, key employees. Another risk factor. If you eliminate those risks, then your business is worth more. The likelihood of you selling your business is higher. Are you in a growth industry? If you're in a growth industry, it's worth more, more likely to sell. If it's going backwards, if you're declining, if your industry is declining, that's a challenge. Is it a cash cow? Meaning, is it just positive cash flow all the time, or do you have to reinvest in new equipment, new infrastructure? new buildings, new leaseholds all the time? If you don't and it's a cash cow, the business is worth more. If you have to constantly reinvest, it's not worth as much. So understanding these key factors is what really drives business value. But again, I will say this until I'm blue in the face, that the value of the business is primarily going to be driven based on the earnings. If you don't have earnings, if you don't have EBITDA in your business, the business isn't going to be worth anything. If it's completely dependent upon you, the business isn't going to be worth anything. Nobody's willing to pay something because you are too much risk. As soon as you get paid, the fact that you would need to continue to remain there even though you're independently wealthy, that's too much of a risk. So people want to buy businesses that operate without the owner. So I'm sure there's other factors that drive business value, but these are the main ones that we want to focus on when we're evaluating, one, whether your business is going to eventually sell, and 2, how we drive the maximum value so that you truly get paid on an eventual exit.