'Building the Value of Your Business'
As we all know, business owners are builders. Through hard work and ingenuity, we are willing to take risk because we know how to build a business. It is instinct for the well-equipped entrepreneur. Building a business over the years is like building a bridge; first create the concept and build a strong foundation. Then find the talent to expand on your ideas (Intellectual Capital) and then grow it with TLC - Trust, Loyalty and Creativity. However, when it’s time to exit, all business owners want one final growth spurt to increase the value one last time before a transaction.
Should you Benchmark Business Value?
When asked, most business owners will tell you they know the value of their business. But secretly, when they are alone contemplating, many are unsure. Many over inflate the value and have unreasonably high expectations. That is why at the beginning of the business exit planning process it is important to benchmark the current value, before you attempt your final growth spurt. It provides a method of quantifying your short-term growth. Through the informal business valuation process, you get an accurate measure of the value, quarter-by-quarter, without spending an arm and a leg on a formal valuation.
What Are your Value Drivers?
Value Drivers help increase the profitability of your business and are critical to develop several years before a potential business sale or transition. The bottom line is that Value Drivers help increase your company’s value. One of the most important value drivers is stable, steady and increasing “free” cash flow. Other value drivers are innovation and talent, a well-diversified customer base, business systems that improve sustainable cash flows, effective financial controls (KPIs) and value drivers tied to your specific industry. For more on Value Drivers see our Blog Post!
How Good Is Your Good Will?
Goodwill is extremely valuable, however since it is an intangible asset, you don’t typically see it on the balance sheet. But what if you could quantify and monetize it as part of your monetization strategy? It is something to think hard about before its too late. The goodwill of your business integrates synergy among select assets in your business that are used to generate revenue and ultimately profits. They include company assets like the brand (name, logo, etc) and industry recognition, strong customer base and relationships, company website and domain name, copyrights, trademarks, and patents, licenses and permits, excellent employee relations, talented management team with innovation, processes and systems, training programs, reputation among customers and vendors, proprietary technology and more. Remember that you can lock-in added value due to the goodwill of your business.
How Clear Is Your Message?
Your company’s message reflects your brand. A great brand is a trust magnet, repeatedly attracting new and repeat consumers or clients. Buyers want sustainable growth and look for leverage to expand a company’s market penetration or make a strong entry to new markets. The brand magnet becomes a vivid and welcome sign for future success and potential growth. Brand management provides an assessment of the current strength of a founder’s brand and develops strategies to maximize the value and adaptability of the brand—including effective communication of the company’s history, story, and value proposition. Make sure before you exit to enhance your message to it is effective, which may bring additional buyers to your table.