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Tuesday Morning Coffee

Tuesday Morning Coffee

VITAL Question # 14

Posted on May 13, 2014 at 6:15 PM

VITAL Question #14

What is my CI business worth, anyway?

And, How do I build real value in my company?

Let’s say you own a CI company that produced sales of $2M in 2013. If you wanted to sell the company, what could you get for it?  You might think you could get a value of 1X sales, assuming decent profitability. Reality is closer to 30% of that (or less).

Certainly a mid-size CI business has value. But despite providing decent income and some accumulation of equity/assets, they are almost always a tough sell. Who would buy it, in the first place? How would they pay for it? And who would run it, if the selling owner wanted to walk away? These challenges mean a very limited market value for the selling owner.

So how does that $2M company get itself in a position to sell for $2M, and maybe even more? Here are the strategic “value drivers” we’ve identified…

 

  • Consistent revenue growth, year over year (at least 10% annual increases)
  • Above average profitability (> 20% net profit, before owner income)
  • Proven ability to attract new customers via marketing
  • Scalable & documented process
  • Replaceable owner (ie, someone else could successfully run the business)

 

Even with all the above, there are few investors of any stripe looking to buy premium-priced companies with annual revenues of 7- or even 8-figures. The real action – and valuations of 1X revenues and beyond – happens for profitable companies with 9-figure annual revenues. That last piece is the cornerstone of the VITAL strategy. No one integration company is going to get there on its own. But with 40 or 50 good companies, strategically located, we plan to create a $150M-$200M organization over the next few years.

In just a few months, we’re 40% of the way there.

Conclusion: getting an extra 5%-6% profit points each year; building a growth capable organization and appealing to 9 digit buyers is a good strategy. This is how good companies become great; we think it is vital.

Categories: VITAL QUESTIONS

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