In order to create a company that provides more than a great job, you have to start with the end in mind and build a business based on value, gravity, stability, and independence.
Value—it creates wealth in a repeatable fashion
A “valuable” business produces a very healthy return (in the magnitude of 25 to 100 percent) for every dollar of assets (cash, investments.). This is called return on assets (ROA). Does your company take a lot of assets to run? Does it suck up cash and investments in order to make it work? Focus your efforts on improving your ROA by reducing the working capital needed for day-to-day operations.
Just as important, if not more so, is your company’s ability to produce cash. In fact, for every dollar it earns in profit, it should be producing more than a dollar in operating cash flow.
Does your company generate revenue in a repeatable, predictable manner? Do you depend on brand new clients or existing clients to generate revenue? Design/Build can be part of your mix, but how much cross selling drives your business, and how much do you depend on brand new clients? Maintenance and recurring services should be a key element. Are there exceptions? Yes, I have seen 100 percent design/build companies with such solid operating systems that jobs flow in like clockwork in a very even fashion.
Gravity—it attracts clients in a steady flow
Anyone who buys your business (your son/daughter, your management team, or an outside investor) will want to be able to grow it so they can pay you and also have a payday for themselves. Is your business constantly positioning itself for growth?
Have you developed a reputation and a system for nurturing marketing and sales gravity where leads and clients are attracted to you and pre-sold when they come to you? This takes a business that operates like a well-oiled machine, with all the employees and systems working seamlessly together to deliver solid results. It requires a well-branded company that grows both from referrals and from a good marketing presence. It requires sales systems that are repeatable and successful, regardless of the salesperson doing the selling. It requires systems for managing client expectations that keep the vast majority of your clients happy and returning.
Stability—it is as dependable as a Swiss watch
A valuable business is a stable business. It contains employees and managers that are loyal and that feel connected to the firm, both by a non-compete agreement and because the employees work as a team to build the company. A stable company has reduced the risks inherent in your business—from safety, equipment, facility, salesperson, and even client risk that comes when you overly depend on one large client or one type of client.
Stability also comes from employees knowing what they need to do and having the tools to do it. It is a well-organized company where people work efficiently through good systems and administration. Your systems should tell each crew what your expectations are for a job to be considered “well done”; they should also outline what the crew is doing throughout the day.
Independence—it runs without you
Are you able to go on vacation for at least three weeks at a time? That thought both excites and scares many business owners. Prove that your company can operate without you, and it will be easier to sell it to someone else. If you have never done this, it is best to start with small steps, and identify what doesn’t work when you leave and then start to put those pieces into place.
EBITDA (profit minus depreciation)—it is not the ultimate measure
Many people profess you should focus only on EBITDA as your key measure of success. This is misleading. You need to balance everything discussed in this article in order to build sustainable value.