In episode 19 of the Freedom Experience podcast, I had a great conversation with a Graham Stephen discussing why business valuations should be as routine as an annual health check-up.

It got me thinking about how we treat our physical health versus our business health. Understanding your company's value isn't just for those looking to sell—it's an essential tool for strategic growth and long-term planning.

Just as you wouldn't wait until you're sick to visit a doctor, you shouldn't wait until you're ready to exit to understand your business's worth. Yet when it comes to our businesses - our livelihoods - many of us are flying blind.

Why Regular Valuations Matter

Here’s a sobering statistic: approximately 85% of businesses never sell, they simply shut down or wind down. Of the 15% that do sell, only about 20% achieve their desired value. It’s like waiting until you're seriously ill to visit the doctor. By then, it might be too late to make the changes that could have prevented the crisis.

Ask yourself this: what’s your "magic number", that ideal exit value you have in mind? Now, here's the more important question - does your current business trajectory align with that number?

The Five Pillars of a Valuable Business

Just like your doctor checks specific health markers, your business has five critical indicators that determine its health and value.

1. Owner Independence

Here's a question I love asking business owners: Can you take a three-week vacation without checking your email? If you're laughing (or crying) right now, you're not alone. But here's the truth - a truly valuable business should run like a well-oiled machine, with or without you at the helm.

2. Solid Systems and Processes

I'm not talking about investing in expensive software! Think of this more like creating simple, repeatable routines. Just as your body needs different systems working together, your business needs basic frameworks for sales, invoicing, and operations.

3. Financial Health

Focus on generating sustainable cash profits. Let's be real - if you're selling something for $100 but it costs $105 to produce, no amount of marketing will save you. Understanding your unit economics is like knowing your blood pressure - it's fundamental.

4. Customer Base Analysis

Quick question: If your biggest client left tomorrow, would your business survive? If you're feeling a bit queasy thinking about this, we need to talk about diversifying your customer base!

• Evaluate your total addressable market
• Avoid over-dependence on single customers
• Maintain healthy customer diversification
• Watch for signs of customer concentration risk

5. Effective management of working capital

Does your business have strong operational foundations? Ask yourself:

• Does my business have robust accounting processes
• How well is the business’s working capital managed
• Do we maintain good supplier relationships
• Do we build trust through consistent operations

Taking Action: Building for the Future

The key is finding the sweet spot where realism meets optimism. While having ambitious goals is important, they need to be grounded in reality. Here's what I want you to do this week:

1. Schedule your business's health check-up. Take an honest look at those five vital signs.
2. Pick ONE area to focus on first. Remember what Jim Collins says - "If you have more than three priorities, you don't have any."
3. Start small but be consistent. Could you document one process? Delegate one task? Every journey starts with a single step.

Remember, building a valuable business isn't about becoming the next tech unicorn—it's about creating sustainable value that works for your goals and circumstances. Start the valuation journey early, and let it guide your path to building a more valuable enterprise.

Here's to your business health!

Jean

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