💡 A valuation is the practice of putting a price tag (value) on your company.
💡 If you ever want to sell your business either partially or fully and reap the benefits of your hard work, potential buyers will value what your business is worth in $ within a so-called valuation.
Your aim as a founder therefore should be to understand the different levers of a valuation and how to influence them, to receive the maximum amount of $ possible.
💡 There are a thousand different business models with the unique value levers for each company. However, if you focus on the list down below, you are most likely adding some decent value to your business.
- [ ] Read the Basics, or continue below if you already understand valuation
🪄 Lever #1 - Have a plausible and catching business plan
- [ ] If you don’t already have one, draft a business plan with the key components outlined above.
- [ ] Make sure it is plausible, coherent and follows a attracting overarching narrative you are able to defend.
- [ ] Make it a habit to revisit your plan over time and iterate on the basis of new findings/changes in the market.
- [ ] Use the key insights you generate from crafting/updating your own business plan to continuously refine your business.
- [ ] Make sure you keep and continuously update a list of your main competitors and their ways of trying to steal your market share. By being on the lookout you can foresee market changes and safeguard a potential monopoly position, hence your top-line.
🪄 Lever #2 - Know key levers of your cash flow and how to impact them
- [ ] Learn to read and influence your Cash Flow Statement for it is the final verdict of what is left after everything is said and done → If you don’t know how to read one here is a good intro article
- [ ] Brainstorm ideas on how to increase revenues with the main levers: Price, Customers, Retention, Churn, Upsell Potential etc.
- [ ] Always stay on top of your expenses by having a tight bookkeeping, hence identifying potential for cost reductions, within reason.
- [ ] Crafting your own P&L or having your accountant walk you through one is a good starting point to understand where you are spending money and what could potentially be improved.
- [ ] Automate as much as possible early on to increase efficiency and reduce P&L-heavy labor costs.
- [ ] Improve your working capital (the funds needed to run your day-to-day operations) by:
- [ ] Pre-charging customers for your services/products
- [ ] Having customers pay bills on time or reducing the payment deadline altogether
- [ ] Outsourcing your receivables to a factoring agency (they usually take a cut of the amount outstanding)
- [ ] Negotiating better payment terms with your suppliers