Return on Information: Know More to Show More to Future Buyers
Growing a business is an exciting and rewarding journey for owners. But at some point, every entrepreneurial journey must come to an end. Very often exiting your business means selling it to a new owner.
Finding the right buyer for your business is never straightforward. As the owner, you’ve invested many years of blood, sweat and tears (metaphorically or not!) building it into a profitable value-creation machine. As with many entrepreneurs, you likely have a strong emotional attachment to your business. It’s virtually impossible for future buyers for your business to see and appreciate the value of your business the same way you do.
Even without the same emotional regard for your business, we know your Canadian Enterprise is more valuable to future buyers than what the usual superficial financial metrics can tell them.
By demonstrating consistent and improving performance on important metrics such as Customer Retention, Net Return Revenue (NRR), Referral Rate or Reputation (customer regard for your brand) you can substantially increase the price future buyers will pay to acquire your business.
How much more valuable, you ask? Here’s an illustrative example:
Consider a midsize Canadian Enterprise with an annual revenue of $10M CAD with an expected annual growth rate of 4% over the next five years and steady margins of 10%. With these numbers, future buyers may value this company at 4X EBITDA and offer to purchase this company for $4.87M CAD.
However, if the midsize Canadian Enterprise were to demonstrate improvements in customer retention and NRR – which can have a dramatic impact on profitability – it would be reasonable for the future buyer to expect future earnings (EBITDA) to increase over time instead of remain flat.
Such an expected increase in EBITDA automatically increases the purchase price of the business. However, an increasing EBITDA is valuable enough to a future buyer that the multiple is likely to increase also.
By showing more metrics related to the quality, reliability and therefore the inherent profitability of the enterprise’s customer base to future buyers, the owner can expect to sell at a 50% higher value.
Additionally, by knowing more metrics related to the enterprise’s customer base ahead of time, the owner has the opportunity to improve them such that he earns more in the years leading up to his exit too.
The team at New Territory can provide you with this information and insight on the quality and long-term profitability of your customer base.
Our modular program is designed to allow small and midsize businesses to gradually uncover and capture new opportunities to grow profitably.
Module 1: Audit Performance is a multi-dimensional deep dive into the value of your current active customer base to your business over time. Relative Revenue is one thing we look at, of course but we also consider Product Adoption, Net Return Revenue and Tenure
We then analyze this data for the purpose of clustering customers into high, mid and low value “segments”. Each segment is then evaluated independently to identify characteristics that are common within it as the customer’s industry, geographic location, or maturity.
We provide our clients this information at a cost less than 1% of the difference in exit value (purchase price) in the below five year forecast (Appendix A).
Would you like to know more?
Book an introductory meeting with me today. I’d like to meet you, get to know your business and share more about what we do for Canadian Enterprises at New Territory.