Key Drivers to Scale and Build Asset Value in Your Business

- Chris Spratling

A very warm welcome to our latest blog. Today’s blog is the first part of a new four part series that is in response to lots of questions about how established businesses can take the next step and begin to (a) really scale up or (b) create real asset value with a view to creating a successful exit for themselves.

Today we’re going to start by focusing on some of the key scale up and value drivers, namely revenue, margin and cashflow drivers.

As a successful entrepreneur who has already enjoyed regular growth in your business, you’re probably looking to either;

  1. Accelerate your growth and build a profitable, sustainable business that  scales  year after year ( JUMP) i.e. grows consistently by more than 20% per annum or…
  1. Think about preparing your business for sale (FLY) in order to realise the full financial rewards of all your hard work over the many years. 

You’ve almost certainly already learnt to successfully navigate a number of different challenges as part of your existing entrepreneurial journey. Whilst the  JUMP and FLY phases bring more challenges again, the step change in financial rewards goes hand in hand with the increased complexity and magnitude of challenges for most businesses at this stage.  

There’s no doubt that those entrepreneurs who manage to create a business that is capable of exploiting this elusive  JUMP stage enjoy massive commercial and personal benefits that simply elude so many of their peers.

Commercially the trappings of a business that is consistently enjoying periods of rapid growth in revenues, gross and net margins are both obvious and unquestionably financially lucrative.

The inevitable cashflow improvements from the aforementioned growth only further enhance the financial rewards for the business and the successful entrepreneur alike. 

Better still market-leading growth rates are one of a number of significant factors in enhancing the asset value of the organisation when ambitious entrepreneurs work towards maximising value in the run-up to an exit.

Consequently, those entrepreneurs who manage to successfully navigate this exciting  JUMP stage and consequently set themselves up for the FLY stage invariably enjoy far greater levels of financial freedom, control and independence compared to the majority of their peers, whilst creating far more time and a far greater sense of fulfilment for themselves, their families and their team.

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As businesses grow, they invariably face some very specific challenges. Understanding how best to address them, in what order, whilst also identifying the opportunities associated with these challenges is a critical part of unlocking your business’ true potential.

Despite record numbers of new businesses being launched in the UK year after year have you ever wondered why so few entrepreneurs actually achieve either of these elusive goals?

Have you ever wondered why is it that the so-called gazelles, those companies that grow turnover by 20%+ for at least three consecutive years, enjoy market-leading gross (70%+) and net profits (20%+)?

Did you realise that these same companies are responsible for most of the UK’s SME growth but only amount to approximately 4% of the total number of SMEs?

Similarly – have you ever wondered why less than 11% of businesses listed for sale in the UK are ever sold?

There’s no doubt that in order to successfully navigate the  JUMP or FLY stages entrepreneurs need to develop a distinct set of skills and attributes that will allow them to unlock their true potential and create their own high performing organisation. 

They need to develop the ability to deploy their vision for the organisation whilst inspiring others in pursuit of ever increasing stretch goals. They need to learn how to combine strong commercial and strategic acumen along with exceptional decision-making skills to exploit opportunities as and when they arise.

Contrary to the many myths around successful entrepreneurs and their individual entrepreneurial journeys entrepreneurs are rarely born with these skills. They are skills that we all have the ability to learn and indeed must learn if we’re to ensure our business realises its true potential.

High-performance coaching is about helping ambitious entrepreneurs and their organisations reach their full potential. 

Whether you’re looking to scale your business or ready your business for an exit our bespoke One to One coaching solutions are the fastest way to give you and your business the clarity around the key strategic and operational decisions you need to take, the focus as to what needs to be done in order to achieve your goals, and ultimately the action plan to deliver the results that you desire. 

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We’re truly passionate about supporting business owners like you overcome your challenges and unlock the true potential of your business. If you’re looking to drive your business forward, get in touch today!

Revenue & Margin Drivers

For the entrepreneurs with a business in the  JUMP or FLY phases the attractions of scaling both revenues and margins are hugely appealing.

Typically businesses in this accelerated growth phase (JUMP) will enjoy consistent annual revenue growth rates well in excess of 20% allowing the company far greater resources to either re-invest in further growth initiatives e.g. enhanced sales & marketing activities, new product development, higher calibre staff, more staff, better systems etc….  or alternatively, invest in new ventures be they in the form of product diversification or possibly even acquisition.

These accelerated revenue rates are characteristically driven by focusing on some or all of the following growth strategies, namely;

Increased Market Penetration 

Developing New Markets

Developing New Products

Diversification

Similarly, by focusing on the key profit drivers such as price, variable costs, fixed costs and sales volumes and developing strategies to improve each of them, organisations within the   JUMP phase will, by working with us, typically improve margins so as to enjoy gross margins of up to 70% and net margins often in excess of 20%.

Again these improvements consequently provide greatly improved financial resources for both the business and the business’ owners alike. 

In the case of the latter, this invariably provides the capacity for significantly enhanced drawings/ dividends, pension contributions, and other personal investment opportunities.

Cashflow Drivers

By working alongside businesses in the  JUMP and FLY phases we would also expect to see significant, and in many cases rapid, cashflow improvements.

By developing aggressive strategies to improve the key drivers of a scale-up organisation’s cashflow we typically find ourselves focusing on key areas such as;

Accounts Receivable Days

Accounts Payable Days 

Work In Progress Days

Price Change Percentages

Revenue Growth Percentages

Cost of Goods Sold Percentages

Overhead Percentages

Payment terms and business T&C

Commercially this leads to significantly improved cash reserves and allows the business to further accelerate its growth plans by exploiting high value, high margin opportunities alongside otherwise out of reach strategic investment opportunities.

As with the increased revenues and margins that typify these JUMP  and FLY phases the significant growth in cashflow also allows entrepreneurs to take enhanced personal rewards from the business or simply benefit from the ever increasing asset value within the business itself at a later date. 

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We hope that you’ve found this first part of our new four part series of blogs useful and informative.

DON’T MISS our next blog in this current series that goes into even more detail about how successful entrepreneurs build real asset value in their businesses.