Will your company be worth more or less in the next 12 months compared with today?
Entrepreneurs, by nature, want to increase their business value. But what can they do about it? There is no magical “rising tide” that assures business growth. You must plan to grow and your plan must make sense.
Whether you are struggling for survival, waiting for a turnaround, or managing a growing company, the following tips should be of help:
1. Think big picture
Know where you are headed as a business. Focus on a niche that you can dominate and stay away from a “we do everything” approach (unless that isyour niche). You may need to shut down or spin-off a service or a product that is burdening you with losses or costly distractions.
Practical tip: Get out a piece of paper and write down your strengths, weaknesses, opportunities, and threats. This exercise, commonly called a SWOT analysis, will help you think strategically about the internal and external factors affecting your business.
2. Recognize the value of your people
You cannot do it all. A business is more successful and more valuable if capable employees are empowered to pursue the company’s mission. If you cannot delegate to your people, then you either hired the wrong people for the job or have not trained them well.
Practical tip: Create an incentive and retention plan that rewards managers for performance and for longevity with the company. Buyers love getting a motivated management team that is locked in to stay through an ownership transition.
3. Check out your customers
Your customers are valuable, but what does your customer base look like? Your business value will be significantly higher if your largest customer is 3% of your sales compared with a customer that is 35% of sales. To a buyer, a big customer can spell big risk. What if that customer cannot be retained through an ownership change?
Practical tip: Don’t be dependent on one or two large customers. Develop recurring services or products to keep customers with you and use assignable customer contracts.
4. Report the profits
It is a simple principle. Maximize your reported profits to maximize value. Many business owners lose significant value by underreporting profits. Taking advantage of deductions such as owner’s salary and depreciation is acceptable, but never record personal expense masquerading as business expense, if your goal is to increase your company’s value.
Practical tip: Sit down with your accountant and make sure all owner benefits are being recorded as wages, health insurance and retirement contributions as they would be for any other employee.
5. Standardize what you do
Develop standard operating procedures that enable your business to deliver products or services without direct owner involvement. Ask yourself if you can leave for 2 weeks without the wheels falling off your company. Do you have a job, or do you have a business?
Practical tip: Create training manuals, flow charts and checklists that cover each step in delivering your product or service. Teach them to your team and make certain they know what excellence looks like.
6. Grow Sales
How do you get new customers? A predictable sales process will keep the sales cycle from having an unhealthy dependence on the owner, will help you grow, and will provide more value to a buyer.
Practical tip: Track your customers, where they came from, what it cost you to acquire them, and why they bought. Do the same tracking for leads that did not become customers. Why did they fall off? This process will help you focus and refine your sales approach.
7. Implement the plan
A great plan is worthless if it sits under a pile on your desk. Make the plan simple, achievable and action oriented. Have a clear line of sight and build in objective measures. Get your advisors and management team to “buy in” to the plan.
Practical Tip: Create a concise 1-3 page plan with specific action items and review it weekly.
Here’s to a more valuable business and a successful 2012!