The owner of a software company was looking for an exit much higher than the valuations being suggested by business brokers. The business needed substantial EBITDA growth and an increase in the valuation multiple over the next two years to achieve the eight-digit exit desired by the owner.
One of our CFO partners was hired to serve as a fractional CFO and create the plan to drive up the company’s valuation over a two-year period. First, the CFO instilled a “Rule of 40” mindset – i.e. to aim for simultaneous revenue growth and an increase in profit margin to hit the “Rule of 40” goal. This led to the creation of a plan to increase revenue growth from 9% to 22% while increasing the profit margin from 12% to 18%. The CFO also suggested a strategy to convert to a SaaS model to bolster the valuation multiple.
With the team rallying behind the “Rule of 40” mindset, the business owner and his COO worked with the CFO to create a budget to drive 22% revenue growth and 18% EBITDA margin. The CFO met with the team monthly to track performance versus the budget. The CFO identified a fractional sales resource for the business to use to help drive profitable sales growth. Monthly financial reviews were conducted to identify expense savings to further drive EBITDA.
The CFO also worked with the owner and COO on reshaping the product offering from a “high installation and low maintenance” pricing model to a “low installation and high monthly service pricing” model. The result was impressive monthly growth in the SaaS revenues which dramatically improved the valuation multiple.
In just eighteen months, the business owner received and accepted an eight-digit offer – a goal that seemed out of reach prior to hiring our partner to serve as a fractional CFO.