Every week I am asked questions about what drives exit value:
What is my business worth?
What can I do to make my business worth more?
There are many areas of focus for that, but the one I want to share today is the “Swiss Watch” philosophy.
If your business is built on predictability, systems, process, and “this is how we do it here”, it is worth significantly more than an identically performing peer that happens to be a mess, and making it up as they go along.
Let me say that again, consider two companies in the same industry, same customer profiles, and products and service, both with the same revenue margins, and profitability. If one runs like the proverbial “watch” and the other is a dysfunctional mess, the “Swiss watch” wins in value every single time.
When considering the value of a business, ALWAYS put yourself in the shoes of a buyer.
When you are going to buy a company and put your hard earned (or raised) capital at risk you get somewhere from 4 to 16 weeks to learn all you can about a business before writing the huge check to purchase. Anything that looks like a RISK in that process will detract from value, and anything that looks like a predictable and good outcome will add value.
Since the buyer is going to be responsible to run the business when the ink dries and the wire clears, which one do you think they’d rather own as a buyer?
Which one would YOU rather own? A mess? Or a machine?
No question, I would rather own the machine. Predictable, easy to understand, easy to diagnose problems and course correct. Versus taking on the risk of owning a business making it up every day, relying on heroic efforts, operating with no plans or systems.
I see it every single time in my M&A work, the business with solid systems/processes out values their peers. Period!
Time to take a hard look at your business and get those systems in place ASAP!
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