8 Key Factors Dictate the Value of Your Business
I have met with over 100 business owners in Surrey, Langley, Delta and Richmond the past few years. I am thoroughly inspired by the hard work, dedication and quality of products and services businesses in this community produces. Many make a good living.
However, despite their hard work and success running a profitable business there are many well established businesses that are not creating the wealth needed to fund the owner’s retirement and live the life they had always dreamed.
It is true that producing great products and services while making a profit helps with creating value and wealth in a business. However, there are several factors that many business owners do not consider that can have a profound effect on business value.
Here are the 8 Key Factors that dictate the value of your business
Every business owner should ask these questions if they want to build real wealth into their business.
1. How does the financial performance of your business compare with others in your industry?
Buyers will benchmark your business’s performance with your industry.
2. Are you in a growth industry or is it stagnate?
Companies in low growth industry tend to offer less opportunity to grow profits.
3. Is your business dependant on a just few customers or a few suppliers to remain viable?
This is a risk factor that is a concern for many buyers.
4. Does your business require a larger than needed level of working capital due to ageing receivables or large inventory levels?
Companies that require higher than normal operating cash can be worth less as it increases the amount of investment a new owner would need to make.
5. Are sales predictable?
Does the business enjoy a high probability of repeat business or is it always looking for the next sale?
6. Does your company offer a compelling Unique Selling Proposition (USP) or IP that makes it hard for others to compete?
7. Do you have documented proof that your customers are happy with your product and would and do refer you?
8. How much does the business depend on the owner’s “hands on” involvement to survive?
Would there be a measurable risk that the business would suffer significant consequences if the owner was not around for 3 months?
The biggest mistake most business owners make is they focus strictly on financial performance when it is only one of eight drivers of business value. Working on the other seven value drivers are strategic decisions that require planning, implementation and monitoring. They need to become part of the business’s daily activities with purposeful and conscious effort.
Finding the answers to the above questions is not easy but are key to developing an effective business performance and value acceleration strategy. It often takes someone from the outside to look at the business with a different set of lenses to develop an effective strategy. Consider bring in outside help if need be.
Incorporating business value strategies into your daily operations will not only build wealth for tomorrow but will increase your profits today.