How To Build A £Million Valued Business In 3 Years
At Wealth Financial Advisers, helping businesses to secure a successful exit, based on a clear valuation and an established network of willing buyers is our stock-in-trade. The majority of businesses we work with are at the mature stage, having traded for several years before reaching the point of realising the full investment of time and effort put into growing and sustaining the business.
Given our general experience in these matters, it is tempting to assume that building a business to a multi-million-pound valuation is an endeavour achieved over years, or even decades of negotiating the essential building blocks to reach the point of exit with a substantial return. However, assumptions are always subject to challenge, as demonstrated by a dynamic entrepreneur, who had achieved her aim to build a multi-million-pound business – in just 3 years.
We first met Claire Nelson at a networking event in October 2016 when she suggested that her business, Breakthrough Funding (BTF) was about a year away from selling. When asked for her three years of trading accounts plus management accounts for us to provide an Indicative Valuation, she informed us that her business hadn’t been trading for 3 years yet.
That’s correct – the business was 2 full years old and really in its infancy and Claire was already thinking about what needed to be put in place in order to sell. Claire had a clear plan in place to ‘tee’ everything up ready for an exit. Although the business had generated a 2015 turnover of £580k, Claire had in mind a sales valuation of over £1m to make it worth her while. In 2015, a top end valuation of circa £70k meant we were a long way from that mark.
A Mindset focused on Clear Actions
From the offset, Claire demonstrated a remarkable character, driven by a determined sense of single-mindedness. She also turned out to be a well-networked individual – where it was impossible to walk down the street with her in the City without her stopping several times to catch up with someone.
Gifted with a relentless energy and a low boredom threshold, Claire is the kind of person you have to keep up with or be left behind. Claire channelled her energy and focus into BTF, seizing a gap in the market and jumping straight on it – leaving behind an organisation that had its brakes on over this opportunity – and turned it into a fantastic, enviable business.
Claire broke the mould in several ways. The business of claiming tax relief on R&D spending sounds like a minefield to many business owners when they are busy running the day to day. Claire offered them a simple ‘no win no fee’ way to do this. The problem was that the offer sounded just too good to be true and building credibility in a market so damaged by ‘ambulance chasers’ was very difficult.
To achieve this without a network of expensive sales and a business development team, Claire re-wrote the marketing rule book and transformed herself into both radio and print journalist and created Breakthrough magazine and Food Talk radio. She used these as vehicles to get to meet and interview target clients, provide them with positive media coverage and, at the same time, prevail herself of the opportunity to have a very quick discussion about R&D tax relief, turning each and every interviewee into a client. Wealth financial advisors.
Every single client was delighted when their R&D report was successfully approved by HMRC and a large chunk of tax returned to their bottom-line profit and more importantly into their bank account – very happy clients who had proved that there is after-all such a thing as a ‘free lunch’.
Claire’s business model was also lean – she didn’t employ tax experts or R&D experts but just extremely good report writers and based herself on an inexpensive business park in Ashford. By doing so she kept her profit margin high. The expression ‘turnover is vanity and profit it sanity’ is a very appropriate truism. Large corporates routinely boast their size in terms of turnover values but business success and return on your enterprise has to be measured by profit. If turnover is huge but profit is negative, you are paying your clients to let you work for them and your business set up is not delivering return on investment.
BTF’s gross profit was 88% with operating profit around 40% – another area where Claire broke the mould. A good, highly sellable business would have an operating profit of between 20% and 25%., which we value based on multipliers of 3 to 6 times EBITDA depending on sector and scale. Another rule of thumb assessment of value will be a multiple of turnover. We often say that achieving more than 1 times turnover for a sale value is ambitious but with the profit figures of BTF, we achieved a sales value far in excess of this turnover measure.