If you had the choice between flat, linear growth and exponential growth for the valuation of your business, which would you choose? What if the path to exponential value growth ended up creating a business that was also easier to run, bringing you more freedom? In this article you’ll discover the power of exponential value growth.

In my book, Revenue Growth Engine, we explored how revenue growth can move from linear to exponential by growing net-new and cross-sell revenue at the same time. In reality, most companies experience linear growth because they are either good at landing new customers (net-new) or selling more to their current customers (cross-sell). Get both going at the same time and you get exponential growth.

The same goes for the value of your business. When it comes to valuing a business, there are two drivers: EBITDA and the multiple. If you grow EBITDA without growing the multiple, your business will grow, but that growth will be linear. If you grow EBITDA while also growing the multiple, your business can experience exponential valuation growth.

Consider the following example of a company with $1M in EBITDA and a 4X multiple.

Growing the EBITDA by 30% each year while also growing the multiple results in the company being worth almost 4X more in just 3 years! (Learn more in this 25-Minute Midmarket Executive Briefing: Why Value Is the Most Important Metric For a Business.)

Here’s How It’s Done

To enjoy exponential value growth you need to grow in two key areas: profit (EBITDA) and the multiple.

1. Grow Profit

Growing EBITDA is simple. As I heard years ago from a seasoned business owner in the south, “If you want to grow profit you need to either raise the bridge or lower the water.” Improve your Revenue Growth Engine to grow revenue. Engage your Profit Growth Engine to automate processes, reducing costs. Together, these drive profit growth.

2. Increase the Multiple

As you grow the quantity of profit you also need to increase the quality of the profit. Quality increases the multiple.

Consider two companies. Company A has $250K in monthly recurring revenue. The revenue is based on handshakes with “customers that love us.” Company B also has $250K in monthly recurring revenue. However, this revenue is backed with signed contracts that bundle multiple products and services.

While both companies have the same revenue, the multiple on Company B will be higher because the revenue is contracted and less risky. Thus, the value of company B will be higher.

Quality of recurring revenue is just one of many drivers that determine the multiple of a company. Others include things like how dependent are operations on the owner? Is their continuous improvement? How well is the company doing at cross-selling customers?

Benefits of Exponential Value Growth

When you get EBITDA and the multiple growing at the same time, good things begin to happen.

1. The Company is Ready To Sell: You may not plan on selling your company. However, the Exit Planning Institute’s research shows that 52% of company exits are unplanned due to things like death, disability, or divorce. So, it’s a good idea to have your company ready to sell. Plus, who knows if someone might make you an incredible offer you can’t refuse.

2. The Company Is Ready to Grow: Scott Snider says, “A company that is ready to sell is a company that is ready to grow.”With quality revenue growth, structured leadership, and automated processes, a company can handle more growth. Plus, if capital is needed, it will be easier to raise and at better terms.

3. The Company Is Less Risky. Good quality revenue combined with documented processes means that the company has less risk of revenue reduction. Automated and documented processes ensure the company can continue to run even if a key employee leaves.

4. More Freedom: A high multiple on EBITDA is also a high multiple on freedom. Well run companies not only generate more profits, they also provide more options for the owner. This type of freedom makes many tired owners fall in love with their business again.

It Begins With Measuring Value

Enjoying exponential value growth begins with setting a baseline. You need to know your EBITDA. You also need to know your multiple. You need to scorecard these over time.

Until recently, knowing the multiple on your business was impossible without going through a lengthy and expensive valuation process. Fortunately, there is now a way to get an accurate estimation of the value of your business by employing an algorithm that is connected to a database of over 65,000 recent business sales combined with a dataset of current multiple ranges by industry. Best of all, you can find this information out in less than one hour.

If you would like an accurate estimation of the value of your business including your multiple, message me here on LinkedIn. We’ll set a appointment to set a baseline for the valuation of your business so you can begin the journey of exponential value growth!

Originally published on Darrell Amy's LinkedIn.