How much could you get for your Fractional CFO firm if you had to sell it tomorrow?

Zero?
$5M?
No clue?

Based on the research I’ve done, it looks like 70%–90% of small businesses never sell. Many never sell because they go out of business, of course. But many more last until the owner arrives at retirement age. And then…

The owner closes the doors. Permanently. With nothing to show for decades of work.

I don’t want that for your Fractional CFO firm, and I bet you don’t either. So this edition of the newsletter features a thinking exercise that’ll help you build a more valuable, ready-to-sell fCFO firm.

You Should Build a Valuable Firm, Even If You Never Sell

The Fractional CFO owners I talk to generally fall into two big buckets when it comes to the long-term goal of their firm.

Lifestyle firm owners intentionally build a business to deliver the lifestyle they want: a sufficient salary with reasonable work hours. These owners possess a clearly defined definition of “enough.” Once they reach that point, even if they could grow more, they take their foot off the gas. They’re fine cruising at 50 miles an hour and don’t feel pressure to push to 75.

Growth-focused owners want to build aggressively. Their goal is to create a larger, growing firm with more fCFOs, more clients, more revenue, and more profit. They aren’t necessarily workaholics, but they’re driven to build something bigger. Often, their end goal is to exit in exchange for a large check.

Both paths are valid. Neither is wrong. Still, it’s common for the two sides to throw rocks at each other: “You’re scared of growth.” “You only care about the bottom line.”

Whichever category you fall into, you’ll be well served by intentionally building a valuable firm. By “valuable,” I mean one that objectively has—or would have—a high valuation. 

But if you don’t want to sell, why should you even care about your firm’s value?

Because every contribution that makes your firm more valuable also makes it a better place to work. You’ll enjoy running it more. And if you ever do decide to sell, you’ll get a hefty payday instead of just closing the doors.

The Size and Security Exercise

Valuation math is complicated. Conducting a formal business valuation involves dozens of factors and hundreds of hours. But you don’t need to run a full valuation to know what would make your firm more valuable.

This exercise is a 20-minute thinking session you can do to identify how to build a more valuable business over the next quarter, the next year, and beyond.

It’s just two questions. Grab a pen and paper, and let’s get started.

Question #1: How Can I Increase the Size of My Firm’s Future Earnings?

The first question any prospective buyer asks about a firm is: How much money is left over at the end of the day?

Increasing the size of your earnings is the most obvious way to increase business value. The great news is that you benefit from this immediately, even if you never sell, or don’t sell for a long time.

A few ideas to get you started:

To increase the size of my firm’s future earnings, I could…

• Sell more.
(Obvious but true.)

• Raise prices.
(Even small price increases can do wonders for your margins.)

• Upsell.
(A client already paying you $5K/month might happily pay $6K if you have more value to offer.)

• Trim expenses.
(You can’t cut your way to profitability, but you can absolutely increase profitability by streamlining how you deliver your service.)

• Fire unprofitable clients.
(Not all revenue is created equal. You might discover “that one client” is costing you more than they pay.)

Want to raise your prices but not sure how? Join my free live Scope & Pricing Masterclass on October 22nd and 24th. I’ll reveal the model I use (and the mistakes I’ve made) for setting pricing inside my Fractional CFO firm. Register here.

Question #2. How Can I Increase the Security of My Firm’s Future Earnings?

They say a bird in the hand is worth two in the bush. 

I don’t know who they are, but apparently they do say that.

What you already have is certain—what you don’t yet have is less certain. 

The more certain you can make your future earnings, the more valuable your business becomes.

But how can you do that as a Fractional CFO?

Say your firm’s typical client stays 12 months. That puts you in the unenviable position of replacing the entire client base every year. 

If marketing stops, then in 12 months, the firm has exactly zero clients. That is not a secure future stream of earnings. 

In contrast, a firm whose typical client sticks around for 3 years has far greater assurance of what the future holds.

A few ideas to get you started:

To increase the security of my firm’s future earnings, I could…

• Reduce client churn.
(After how many months does the typical client leave? What does that reveal about the weak spot of your service?) 

• Reduce revenue concentration.
(Beware of “whales.” Avoid over-reliance on a few large clients, so that your biggest customer leaving doesn’t sink your firm.)

• Replace yourself.
(Train your team to deliver the service without you, so the firm isn’t vulnerable every time you take a vacation. More on this below.)

• Document, document, document.
(Write down exactly how the work gets done. This way, your clients get the same outcome whether John or Mary or Sue is assigned to them.)

Applying This in Your Firm: Take Off All Those Hats

For most Fractional CFO firms, the single largest diminisher of value is owner dependency. 

If you want to increase the value of your firm, start here.

A firm that can run without you is significantly more valuable that a firm that can’t run without you.

Bad for ego.

Great for valuation.

If you want your firm to be more valuable and sellable, figure out how many hats you’re wearing. Then gradually pass that headwear along to others.

Turns out, this will also make your life less stressful even if you don’t want to sell.

To put this into practice, list out all the roles you fill in your business, from service delivery to sales to IT nerd. Start by prioritizing which roles you want to hand off first. Next, get processes in place so someone else can execute. Then hire.

Pro Tip: Start with service delivery.

Gasp.

Don’t wait for “someday” to make your firm valuable. Start with these two questions, and take one small step this quarter to grow and secure your earnings. The point isn’t to prepare for a sale tomorrow; it’s to start thinking like someone who could. Because when your firm is both profitable and transferable, you’ve created something rare: a business that serves you as well as your clients.