How to turn your lifestyle business into your greatest asset

Let's talk about why a lifestyle business might be the greatest asset you ever have. 

Not only is your business going to provide the income that you need to live the lifestyle that you want to live, down the line, if you get this right, you can build a business that has a value to someone else.

If you build a business that has a value to someone else, that means you can sell it. 

You can exit out of that business and take the money. 

You can either invest the money and (if it’s enough) live off that for the rest of your life. Or, if you can’t think of anything worse than endless days to yourself, and are in fact a serial entrepreneur, you can invest most of the money and use some of it to start up your next business.

But either way, you are the owner of an asset at the moment. And if you get it right, you can build this asset so that it has value to someone else and in the future, you can sell it. You might also choose to keep the business and just exit yourself from it - so keep taking the profits out for yourself but let other people run it and keep it going.

Whatever you choose, there are a couple of things that you want to bear in mind when building your business. There are things that you need to understand that will drive the valuation and ways to have the business work without being dependent on you. 

How to increase your business’s valuation

Let’s take a look at the key things you need to think about and identify the areas you need to work on. 

1. Recurring revenue.

You must have recurring revenue in your business.

Recurring revenue will drive the valuation of your business up - ideally you want to aim for about 30% of your total revenue coming from recurring revenue streams. 

By recurring revenue, I am not talking about payment plans. Payment plans are not recurring revenue. You took the revenue once and they're paying over a period of time, which is not the same. Recurring revenue is something where you get to generate an invoice every single month for a service and ideally, customers are locked in for a period of time. 

For example, if you sell websites, you might charge your customers a hosting fee. So you would raise them an invoice every month for the fact that you host their website and that you provide the updates to all the plugins and maintain any security type stuff.

You might have a membership, people pay you 50 quid a month, 100 quid a month, and they're with you for 12 months, that's recurring revenue. 

When people are valuing the business, they're going to apply a multiple to revenue or profits, and the multiple that they apply will be driven up if recurring revenue is present.

2. Strong revenue growth

You do not want to see ups and downs or peaks and troughs in your revenue, you want a consistently upwards trend of growth.  The steeper the growth line the better (for valuation purposes anyway, maybe not operations but that is another blog post altogether).

Before you come to sell your business, you want to be able to show two years of really good strong, solid growth in the revenue line. 

3. Solid profitability

You don't want a business that is making losses for nine months, and then profits for three. And ok, the profits might outweigh the losses, but it's too up and down. It's too nerve-racking. Your business needs to be generating strong profitability, consistently.

In an online business, your costs are limited. You don't have overheads in the sense of an office, you don't have to pay rent, you don't have to pay gas bills, you don't have a load of staff, what you have is you work from home or the pool or wherever you're choosing to work in your lifestyle business, but you already there anyway, so there are no additional costs to that. You've got a lean team, so we haven't got massive payrolls to worry about.

If you're doing it right, there won't be masses of marketing, you should be able to hit a really strong profitability, you should be able to hit 35% net profit margin.  If you don’t know what yours is, go and check your profit and loss account and have a look (if I sound like I’m talking another language right now join my group Destination Unknown because you need to understand these basic terms if you are running a business).

If you aren’t hitting those margins, drop me a message. If we work together, that will change! 

But strong profitability consistently is important, especially if you can deliver that over the same period as strong revenue growth. Ideally, the two years before sale.

4. Legal and business foundations.

It is essential that you are complying with everything you have to legally and that you have the basic business foundational stuff in place.

For example, you must have terms of business that everybody is getting when they buy from you. You must have contracts in place with all of your contractors to make sure that they can't walk away with your IP at any time. 

If you want to know more about this, let me know and I can create a resource for you. 

You want to get the foundations right, you want to make sure the legals are all in place so that somebody isn't buying something that comes with a risk.

If you've got customers in a membership and you know that they're there for a year, you want them to have a contract that says that. Nobody wants to buy a business that they think has recurring revenue, of 100k every month, only to find it’s not contracted and everyone could leave whenever they want. 

You are trying to minimise the risk that a buyer would need to engage in if they want to take over the business (and for as long as you keep the business, you want to minimise your own risk).

5. Good financial reporting 

This is essential because if you're going to sell your business you are going to have to show somebody your financials.

It's all well and good getting excited about your business and telling them what you've done and what could still be done, but any potential is going to want to see these numbers. They will want to see your revenue, costs and profitability. They want to see what your customer retention rate, your lead conversion rate, your cost of customer acquisition.

You want to be able to track all of this information so that you can provide it to potential buyers in the future. It is also super important that you know this, even if you don't want to sell. These are basic things that you need to know, as a business owner, so that you can be sure that you're running your business in the most efficient manner. 

Forecasts are also pretty essential, especially when times are tough, like when there is a pandemic. Now when you're in recession mode, you need to be forecasting your cash so you can see problems way before they happen. 

In all the businesses I am involved with, my finger is on the pulse (because that’s what they pay me for) and none of them do forecasting on their own. I get an idea something is up before the data is telling me that it's the case.

However, when I think there is an issue coming, when I feel like something isn't quite right, the best thing that I can do is go and create a forecast based on the current story that we have so I can see when the problem is going to start. 

Then we can make proper decisions, we can take proper action based on some facts, because I've got some actual numbers in front of me rather than just my gut feel. 

So you want to have great financial reporting in place. 

6. SOPS

It's also really important to have your systems and stand operating procedures documented.

This means that if anyone in your team (because they're not staff, they are usually freelancers and they can come and they can go any time) leaves, you have the systems and procedures that you're operating in your business documented so that any new team members can just come in and get started straight away. 

If you're taken out of your business for some reason and you can't work, everybody else knows how things need to happen and they continue to deliver that while you're not around.

I hope this was useful to you.  Let me know what you are going to implement in your business and as always, if you need any help, shout.

Embark on your journey out of Destination Unknown

If you are running a business and trying to build it into something that will help you live your ideal lifestyle, then Destination Unknown is the place for you.

We will be talking strategy, offers, launches, numbers, networking - and all the other practical steps you need to be taking to create your dream lifestyle business. So be prepared to do the work!

It will be focused on how to take your income to the next level, so there already needs to be a foundation for us to build on.