Original article shared by Partner, David Kirkup
There are really only two numbers you need to track in your business. You should know your Current Business Value and your Potential Business Value. Together these numbers can help you improve your earnings, build your retirement fund and ensure you have a successful Exit strategy.
So…what exactly is Potential Business Value? It’s the unrealized value and earnings that could be achieved by systematic focus on business process improvement. By using more sophisticated financial management, and by creating a detailed plan you can determine how much of your Potential is achievable and over what time. It is possible to take any promising business and identify the factors that will drive increased business value.
The first step in understanding your company’s Potential Value is to review your financial information, your core strategies, the strengths of your staff and the ability of the company to perform to plan. You are looking to benchmark your current situation. You need to answer the question: where are you now? And, more importantly, what is the potential value of your business? Business buyers will fight to acquire companies that can demonstrate consistency, solid management, good process and strong profitability. If you can document the strengths and weaknesses of your company you will start to find ways in which your business value can be improved.
Once you have identified areas of improvement and gained an idea of the potential locked in your business, you should lay out a financial strategy for improvement. Is it possible for your business to go beyond its current business goals? What kind of investments will you need to make and what resources might you need to bring on? And what would be the return on investment of doing that? How can you improve profitability, better manage cash flow and improve internal processes. Most important, how can you – the owner – start to disengage from the minding activities that have you working 18 hour days, and that, frankly, unless corrected will cause any serious buyers to pass on your company in the future. You are laying out the process to achieve your retirement goals.
The end game is to create a company with increased business value and better marketability. It’s now time to help the company create a leadership position in their market. How can you identify and implement business growth strategies to surpass, outclass and outrival your competitors – resulting in profit maximization and continued business value growth. With a focus on market prominence you can now start to attract the attention of strategic buyers willing to pay a premium for a company like yours.