Why the multiples matter in business

Hilton Misso’s new book, How to Manifest Success, provides 50 proven lessons for turning ambition into achievement. In this exclusive extract below, he looks at why the multiples matter in business.

People often ask how and why we were able to sell Trilby Misso Lawyers for such a high price. There were many reasons, but one of the most significant was the immense brand awareness and goodwill we had built over the years.

The general practice, founded in 1956 by my father, was rooted in his unwavering commitment to helping the less fortunate.

His work in criminal law and community support programs, guided by highly principled ethics and values, established a culture of integrity and purpose going forward.

This culture, which I fully embraced and upheld, became the foundation of everything our brand represented. I made it a point never to compromise on these values and they endured as the bedrock of our success.

Lesson: Focus on the multiples that increase the value of a business.

Additionally, there were eight key drivers of business value that significantly increased the multiples applied to our business.

These were:

• Financial performance – we had a solid, audited and credible financial history and a strong balance sheet.
• Growth potential – we demonstrated past growth and had a clear pathway for future growth.
• Switzerland structure – the business wasn’t reliant on any single client, supplier or employee. Like Switzerland’s neutrality, we were able to stand alone, independent and stable from outside influences.
• Profitability and cashflow – we had healthy margins and strong cash-flow management well beyond the average.
• Reliability of recurring revenues – we had a high proportion of consistent, recurring revenue streams from all kinds of injury claims.
• Brand values – our brand was strong and so synonymous with ‘no win, no pay’ it made us unassailable in what was a highly undifferentiated market.
• Customer diversification – we had a diverse range of loyal clients, a solid source of referrals and repeat business.
• Owner independence – the business was able to operate independently of the owner/seller.

Intuitively and perhaps coincidentally, we had met most, if not all, of these drivers.

One of the most critical factors was that the firm had been structured to operate independently of the owners, courtesy of a CEO appointment, ensuring that the goodwill and brand value were not tied to any single individual. This independence played a significant role in making Trilby Misso Lawyers an attractive acquisition target and helped us achieve the premium valuation we secured.

Had I not been a part of a coaching group, I wouldn’t have been pushed to hire a CEO to take over my role and been inspired to make the seemingly impossible, possible. So I thank them. It led me to one who was ideal to help me in my bid to make us imminently more valuable. It was all part of the ‘mysterious way’.

The takeaway

If you want a premium price, build a premium business. Recurring revenue, brand trust, independence from the owner – these are what drive valuation multiples. The more your business can thrive without you, the more valuable it becomes to someone else.

• This is an edited extract from How to Manifest Success by Hilton Misso (Wiley, $34.95).  Find out more here.