Build your business to maximize its value
Here are 5 things you can do now to strengthen the value of your business.
1) Define your business goals and create a well-structured business plan. These two items are your roadmap to success. Without them the old adage that “failure to plan = planning to fail” is absolutely true. Included in this item is the use of an annual budget to help you track progress.
2) Ensure that your accounting system is adequate & is being used properly. This includes ensuring that you have appropriate financial controls in place to mitigate the risk of fraud.
3) Expect timely, accurate financial statements from your chief financial person. These should include monthly revenue & expense forecasts, cash flow projections and comparisons to budget.
4) Formalize a cash management program to ensure that your company always has the cash it needs. This requires someone who understands the flow of cash in & out of your business.
5) Define internal processes & procedures & review them annually to eliminate waste. Many times I have seen processes that have evolved haphazardly over time and are full of tasks that are redundant, don’t add value, are counterproductive or can be automated. All represent opportunities to cut costs and give you cash that could be used for better purposes
In attacking the items above you might also want to consider why many businesses won’t sell.
• The owner is too involved in the business for it to transition successfully. In other words, there is no business without the current owner. So, if you ARE the business, there may be nothing to sell.
• Keeping family and key employees in the business is more important than selling the business
• Buyers can’t achieve financing
• Trends in the economy that work against the transaction
• Unreasonable price expectations of the seller
• Inadequate financial records or records that don’t support a sellers price point
If you pay attention to the items mentioned above, you will take a giant step towards building a solid foundation for your business that will maximize its value when the day comes for you to leave.