One of Stephen Covey’s Seven Habits of Highly Effective People, is to begin with the end in mind.
How do you want to exit? Do you want to list/trade sale/ succession plan?
What’s your magic number? $2m, $5m, $10m or more?
Do you know what you will do with that money? Do you know what you will do with yourself?
What does your business need to look like when you exit to achieve your goal?
Grant Fields of MGI Australasia, maps a 10 step process to achieve a goal of $10m in 10 years
1. Do a business health check or diagnostic of where your business is today…. Warts and all… If you sold your business today what is it worth?
2. Understand that there are 2 key drivers to determine a price…. Profit and “Valuation Multiple”
3. Map out ten columns on a page. In the first column set out the profit and loss statement for the current year, the current valuation multiple and the current business value. In the last column is the goal e.g. $10m in ten years.
4. Back fill a potentially achievable valuation multiple and work out what the profit needs to be in year ten. Ideally, the valuation multiple should be greater than the one used in year one because you should be trying to reduce the risk for a potential buyer over the ten years. For example, if the valuation multiple is four then the profit needs to be $2.5m to get the $10m business value.
5. Then fill in some ballpark numbers into the profit and loss statement –what sales will be needed to arrive at a $2.5m profit? What gross profit margin am I likely to be achieving and what are my expenses likely to look like?
6. Do the same in columns three, five, and eight. These create “sign posts” on the ten year journey and there’s now an indicative profit and loss statement that you know you must achieve in order to reach the ten year goal (walking away with $10m).
7. Once you’ve got your “sign posts” flagged on your journey, you can then drill this down to strategy i.e. what needs to be done in order to bring about the required change?
8. Use an appropriate revenue model to focus on building the top line sales for example, Revenue = Number of Customers x Transaction Frequency x Average Dollar Sale. In order to grow the top line you’ll need to work on each of these three variables. ( see 10x growth equation)
- What are your strategies to increase the number of customers?
- What are your strategies to retain your existing customers?
- What are your strategies to increase your leads?
- What are your strategies to improve your lead conversion?
- What are your strategies to increase transaction frequency?
- What are your strategies to increase the average dollar sale?
Even small, incremental changes in each of these can have a massive compounding impact on revenue growth.
9. Set lead indicators to measure and manage the activities that you’ve implemented to achieve the required increases in the above three variables. Unless you’re measuring and managing these activities on a regular basis (e.g. monthly) you’re unlikely to achieve them.
10. Consider getting a coach or mentor to hold you accountable , to meet with you on a regular basis to ensure you remain on track – to turn up the heat when things aren’t happening.
In fact – consider doing this in a group which we call a “10X Coaching Club” – so you can get the power of a mastermind!
The choice is yours. Time to take action!
We are building a growth equation app with strategies to improve each part of the growth equation.
Send me your details and I will send it to you as soon as it is ready (even in beta) .
Would love your feedback!