Which value driver matters most?

It depends on the company, but earnings quality comes first in practice, because every other driver is judged against the numbers. A company with unreliable books cannot prove improvement in anything else.

Can I score my company honestly on my own?

You can get close. The hardest drivers to score yourself are owner dependence and management depth, because owners tend to underestimate how much runs through them. Ask two managers to score those two drivers independently and compare.

Does a high total score mean a high valuation?

Not necessarily, and we never translate a score into a value. The scorecard shows strengths and weaknesses that buyers and valuators tend to notice. A formal opinion of value comes from a qualified valuator.

How often should I re-score?

Quarterly is enough. Drivers rarely move faster than that, and a regular rhythm makes the trend visible.

The Eight Enterprise Value Drivers: A Self-Assessment

Two companies with the same revenue can be worth very different amounts to an owner, a lender or a buyer. Most of that difference is explained by eight value drivers: earnings quality, margins, recurring revenue, concentration, owner dependence, management depth, cash conversion and growth runway. This guide sets out what each driver means, the criteria for scoring it from 1 to 5, and the evidence to look at, so you can produce an honest first scorecard for your own company in an afternoon.

A caution before you start: the scorecard is a diagnostic, not a valuation. It tells you where value is likely being lost. It does not tell you what the company is worth. For a formal opinion of value, speak to a Chartered Business Valuator, who can be found through the CBV Institute.

How to use the scorecard

Score each driver from 1 to 5, using the criteria below. A 3 is neutral. A 1 or 2 means a careful outside reader would probably notice the weakness and allow for it. A 4 or 5 is a real strength.

Three rules make the exercise useful:

Score on evidence, not intention. If the monthly accounts are "going to be" up to date, they are not up to date.
Write one sentence of evidence for each score. That sentence is what you will compare against next quarter.
Score the company as it is today, not as it was in its best year.

Driver 1: Earnings quality

Earnings quality asks whether the company's profit is real, repeatable and explainable from its own records.

1: Year-end statements only, prepared late; personal and company spending mixed; nobody can say what the business earned last month.
3: Annual statements on time, monthly figures roughly available, a few add-backs that are known but not documented.
5: Monthly accounts closed within a few weeks of month-end, reconciled to the annual statements, with a short add-back schedule your accountant agrees with.

Evidence to check: how many days after month-end the books close; the number and size of add-backs; whether gross margin by service line can be produced on request.

Driver 2: Margins

Margins ask whether the work you do is priced and delivered profitably, and whether overhead is proportionate.

1: Gross margin unknown by service line; prices unchanged for several years; overhead grew with revenue and was never reviewed.
3: Gross margin known overall and broadly stable; prices reviewed occasionally.
5: Margin tracked monthly by service line or product, pricing reviewed at least annually against costs, discounts governed by written rules.

Our margin and EBITDA guide covers how to find and fix the common leaks.

Driver 3: Recurring revenue

Recurring revenue asks how much of next year's revenue is already contracted, or very likely to repeat.

1: Nearly all revenue is won fresh each year; no agreements or memberships.
3: Some repeat customers and some agreements, but renewals are not tracked.
5: A clear and rising share of revenue under written agreements, with renewal rates tracked and a named person responsible for renewals.

Driver 4: Concentration

Concentration asks how exposed the company is to a single customer, supplier, channel or program.

1: One customer, or one source of leads, accounts for a large share of revenue; losing it would threaten the company.
3: Some concentration, known and managed, with no single dependency that would be fatal.
5: Revenue spread across many customers and several channels; no supplier or program the company could not replace.

A note for home-service and trades owners: revenue tied to a government or utility rebate program is a form of concentration. Programs change terms or close, so it is worth knowing what share of your revenue depends on any one of them. Our regional pages note some program changes by province.

Driver 5: Owner dependence

Owner dependence asks what would stop or slow down if the owner were unreachable for six weeks.

1: The owner prices every job, approves every expense, holds every key relationship and is the only person who can solve hard problems.
3: Some delegation, but the owner remains the final decision-maker on most things and the main contact for top customers.
5: The owner could take an extended break with no fall in results; decisions are made under written decision rights.

Driver 6: Management depth

Management depth asks whether there is a second layer that owns results, not just tasks.

1: Supervisors or coordinators carry out instructions; nobody but the owner is accountable for profit or growth.
3: One or two capable managers, but roles overlap and results are not reported formally.
5: Defined management roles with clear authority, monthly reporting against targets, and a successor identified for each key role.

Driver 7: Cash conversion

Cash conversion asks how quickly revenue becomes cash in the bank.

1: Receivables routinely stretch for months; the company borrows to cover payroll in slow periods; deposits are rarely taken.
3: Receivables are watched, but collection depends on the owner chasing them.
5: Receivable days are tracked monthly against a target; deposits and progress billing are standard; seasonal cash needs are planned in advance.

Driver 8: Growth runway

Growth runway asks whether there is a credible, documented path to more profitable revenue.

1: No written plan; growth depends on the owner working harder.
3: Growth ideas exist and some are being tried, but they are not measured.
5: A written plan with targets, owned by management, with evidence from the last year that it works.

Reading your total

Add the eight scores for a total out of 40. The total is useful mainly as a trend; the pattern of individual scores tells you more.

Pattern	What it usually means
Low earnings quality, other scores middling	Fix the books first, because nothing else can be measured until you do
Strong margins, high owner dependence	A profitable company that may lose much of its value if you leave
High recurring revenue, low management depth	A durable revenue base held together by one person
Even scores around 3	No single crisis, so choose two drivers and move them deliberately

How different readers weigh the same scorecard

The same eight drivers matter to everyone who looks closely at a company, but different readers tend to emphasize different ones.

A lender usually looks hardest at earnings quality and cash conversion: can the company service debt from reliable cash flow, even in a slow season?
A prospective partner or key hire often focuses on management depth and growth runway: is there room to contribute, and a plan worth joining?
A buyer tends to read all eight, with particular attention to owner dependence, recurring revenue and concentration, because those decide how much of today's performance would survive a change of owner.
You, as owner, gain from every driver regardless: better margins and cash make the company easier and less stressful to run.

This is one reason value creation is worth doing whether or not you plan to sell. Improving the drivers makes the company more financeable, more attractive to strong managers and more resilient, long before anyone talks about a transaction.

A short worked example

Illustrative scores, not a real company. An owner scores earnings quality 2, margins 4, recurring revenue 2, concentration 3, owner dependence 1, management depth 2, cash conversion 3 and growth runway 3, for a total of 20 out of 40. The pattern says more than the total: a profitable company whose value rests heavily on its owner. The first two initiatives would be a monthly close (earnings quality) and a decision-rights table (owner dependence).

Turning the scorecard into a plan

Pick the two lowest scores that you can realistically move within 12 months, and write one initiative for each, with a named owner other than yourself, a starting number, a target and a date. That is the beginning of a value-creation plan. Our guide to the first 100 days explains how to structure those initiatives.

If you would like an outside, evidence-based version of this scorecard, our value-driver assessment uses the same eight drivers with interviews and document review. Call or text (604) 632-4959 to talk it through.

The eight enterprise value drivers, and how to score your own company