How do you maximise the value of your business?
One key area to focus on is building predictable recurring revenue streams. But how do you actually put this in place?
The secret to transforming your business? Think less about what’s in it for you and more about WHY customers would agree to a monthly bill.
This simple change of focus can help you come up with strategies to unlock the revenue potential and valuation of your business. The following story shows us the power of this shift.
The rise of Guardian Angel
Laura Steward’s IT consulting company, Guardian Angel, has been transformed.
Steward had got her firm up to $400,000 in revenue when she called in a valuation consultant to help her put a price on her business.
She was disappointed to learn that her company was worth less than fifty percent of one year’s sales because she had no recurring revenue; and the sales she did have were dependent on her personally.
This set about transforming her business into a more valuable company. She did this by making three main moves:
1. Creating a recurring billing model
The first thing Steward did was to design a monthly program called ‘Angel Watch’, which offered her business clients ongoing protection from technology problems.
She offered Angel Watch customers ongoing remote monitoring of their networks, pre-emptive virus protection and staff on call if there was ever a problem.
When she approached her clients with a calculation of what they had spent with her firm over the most recent 12-month period, including the cost of downtime.
She made the case that by signing up for Angel Watch, they would save money when taking into consideration both the ‘hard’ costs of her firm’s time and the ‘soft’ costs associated with downtime.
90 percent of customers switched from hourly billing to the Angel Watch program because of this shift.
2. Removing dependence on you
Next, Steward doubled her personal consulting rates!
That way, when one of the customers who decided not to opt into Angel Watch called her firm, they were quoted one rate for a technician’s time or twice the price to have Steward herself.
Not surprisingly, most customers opted for the cheaper option and others chose to reconsider their decision not to sign up for Angel Watch.
3. Introducing a survivor clause
Steward also credits a small legal manoeuvre for further maximising the value of her business.
She included a ‘survivor clause’ in her Angel Watch contracts. This stipulated that the obligations of the agreement would survive a change of ownership of her company.
Having successfully maximised the value of her business, Steward went on to successfully sell it. The price? More than four times the original valuation she had received just two years prior to launching Angel Watch.
So what can you do to maximise your business value?
Check out our Business Valuation Calculator to understand more about the factors that are driving the value of your business.