May 14

0 comments

How a Service Business Valuation Can Help You Increase Your Profit

By Kimberley Borgens

May 14, 2021


When is the last time you sat down and took inventory of your business skills and experiences?

Are your prices the same now as they were when you started?

Taking a little time out to look at what you are truly offering your clients and prospective customers can shift how you create profits for your business.

There are three kinds of entrepreneurs when it comes to deciding how much they charge for their services.

  • The entrepreneur that under charges for their services because they don’t feel they have the skills for more or they don’t want to leave someone out who cannot afford them.
  • The entrepreneur that over charges for their services because “darn it I am worth it”. They feel they are going to charge higher because they want people who have money and they want to get the biggest bang for their time.
  • The entrepreneur that charges exactly what they feel is the value they can provide. They are confident that the right people will pay them and they will give them great value in return for that pay.

I want to say that there is nothing wrong with any of these kinds of mindsets when it comes to pricing for service based products and services. The challenge comes when you stay with that same mindset as you grown and you notice your profits are not where you would like them to be.

But what if you can take an honest look at the time, money, knowledge and skills you have put in along the way to be the person you are today to become the business owner that you are. What if you could increase your profits in your business not because you need more money but because you see the value in doing so?

Did you do a little research on what others are charging for similar services and then pick a number you felt comfortable with to start charging your clients? How long have you stuck with that number because it feels comfortable to you? In that research, did you take into consideration the education, training, skills and certifications those people had in order to charge those prices? Did you take into consideration the education, training, skills and certifications you have to decide your pricing structures?

There are many factor that need to be considered to create the prices you can get for what you are offering in your business.

You will want to make sure you work out your pricing so you can maximize your value in your industry and get paid what you have earned.

Check out my Business Skills Valuation Toolkit so you can really hone down what your best prices for your service based business should be.

What is the Value of your business right now?

It is pretty simple to figure it out if you are documenting everything. I highly recommend a computer financial software to make it easy for you to document where all your cash is coming and going from. But if you are not doing that yet then you still need to document everything when it comes to your money! Get a notebook and document all the payments you receive, the fees, expenses and what you are paying yourself. If you have any employees then by all means get with a bookkeeper and get yourself legit!

Here is the simple formula Gross Revenue – Expenses – Your Pay = Net Income

  • Gross Revenue
  • Minus Expenses
  • Minus Your Pay
  • Equals Net Income

Calculate all your income from all business sources. That is your gross revenue. Then calculate all the expenses you pay out from your business (even if it is in your personal name). What have you paid yourself? (If you say you paid yourself nothing from your business then you are crazy and truly need to schedule a coaching appointment with me so I can tell you how dumb this is and help you see the light to start paying your most valuable asset!) Once you subtract your expenses and your pay then you get a total that is called Net Income.

See it is not hard! Well it’s not hard if you are documenting and keeping track of what your money is doing. If you are not yet doing that please start today. How do you expect to see a profit in your business if you are not even looking closely at your numbers? And if you tell me “I’m not a numbers person” then I will say “become a numbers person” because that is what it will take to become a successful business owner verses a statistic that says 20 percent of all new business will fail within the first two years.

Net income lets you know if there is any money left in your business! If there is money then you get to decide where you reinvest any profits. If you do not have any profits (because you are a profit based company and not a non-profit business) they you will have to figure out how to get more clients or reduce your expenses. More importantly if there is any profit, you want to ask yourself “what will I spend it on”. No, a shopping spree is not a good idea!

Now that I have helped you see what money is flowing in and out of your business you might be asking “why it is important to do a valuation on your service based business” on a regular bases. Let me show you how a valuation of your business can be used now and for your future.

On a big scale, you may want to get a small business loan or line of credit, sell your business, attract investors or you may want to buy out a partner. Those are all great reasons to understand the value of your business. These may be important for future exploration in a long term business.

Around five years in business, a larger company approached us to sell our business to them and I had no idea how important a valuation report was until then. (Sometime ask me to tell you the story of selling my first business and how it changed my life.)

On a smaller scale you want to know your business value because you want to invest in yourself with education and skills, invest in software to make your life simpler in your business, buy yourself a new computer, actually pay yourself a good salary or invest in a mastermind program for your growth.

So often entrepreneurs will say “I can’t afford that”, “that is way too pricey” or “my spouse will never let me pay that”! The reasons you say those to yourself is because you don’t know the value of your business and you don’t understand if you are making profits in order for you to reinvest in yourself and your business! If you are not paying attention to the money and what you are spending it on then of course you can’t afford it!

You also won’t set goals to make it happen, because you cannot see the clear vision that your dreams want for you.  Instead, what you see is the clutter created by the chaos of what your money may or may not be doing. (That is a whole other topic!)

If you are willing to evaluate your business each year you will notice that you don’t have the same profits every year. But you will be able to see a pattern of what is important for you each year based on what you are spending money on and who you are bringing into your business as a customer. Assess it and make necessary changes each year so you can grow your business and become profitable!

Start today and focus on what you are bringing into your business, what you are paying out in your business and discovering what your profits are so you can build a profitable business!

Testimonial from Kristen Robinson

“When I stop and think about what Kimberley has done for me and my business, words cannot express my gratitude. I was in a situation where I wanted to pay in full for a business program. It looked really far out of my reach and started to feel like a dream. I didn’t think there was any way to get in the program, let alone stay in it because the price tag was pretty high. With Kimberley’s help, I paid more than 30% of the tuition! Not only was I able to get into the program and make the payments, but know I’m more confident than ever that I can do anything I set my mind to. The best part is thanks to Kimberley, I have no trouble making the payments because I know what’s possible! Thank you, Kimberley, for showing me that I’m limiting myself to “right now” thinking vs. of “where I want to be” thinking!”

Resources:

The True Failure Rate of Small Businesses

Kimberley Borgens

About the author

Kimberley Borgens was married at 18, a mother at 19, and divorced at 20, she has journeyed from being a single mom on welfare to recognizing her strengths, fighting for what she believes in, and successfully building 5 thriving businesses with hundreds of employees and million-dollar budgets. Kimberley is a speaker, business mentor, and coaches her clients to transform their small business into a thriving business. Kimberley is living her own legacy as she inspires and motivates women to be fearless, become more like a CEO of their business and life, and enjoy the freedom they've dreamed of. She knows what it's like to start from nothing and build a strong solid business and she can help you too.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}