business is a tool for enhancing your personal life. Ideally, the payoff
for your hard work and risk is multi-faceted: More income. More freedom.
More fulfillment. And more net worth.
thinking about building net worth via business ownership, the phrase
"It's a marathon, not a sprint" comes to mind. If you're young
or just starting your entrepreneurial journey, you're concerned with
short-term income, insurance for your family, and maybe moving up to a
bigger home. Increasing your net worth may not even be on your radar
that's your outlook, I urge you to expand your focus - to create a
long-term vision. Not only do the years go by more quickly than you
expect, the things you do in your business today will have a significant
impact on its value years down the road.
average person's home is his or her most valuable asset. But your
business could easily surpass your house in value. If you own the
building in which your company is located, that too might be worth more
than your home. Each of these possessions figures into your net worth
a large extent, your real estate is worth what it's worth. You can and
should maintain it. You can even improve it. But its value is driven
primarily by location, and it isn't going anywhere.
business' value, though, is another story. Just as with a building or a
vehicle, it's worth what someone is willing to pay for it. Every
business has a number of factors that play a major role in determining
its value. These “value drivers” should be monitored and managed
from start-up through your eventual exit from the business, regardless
of your exit strategy.
what are these value-determining factors? Here are some general factors
for virtually any industry:
– especially key/management staff and leadership successors
company’s financial picture, especially profits, cash flow, and
lack of debt
a mental picture of your prospective buyer visiting your facility.
It’s clean, well-lighted and organized. You introduce your
knowledgeable, enthusiastic and capable management team, who would
likely come along with the sale. You review your large and growing
customer base and discuss the tight relationships your company has
forged with key clients. Your history of healthy profits and cash flow
is documented via tax returns and other official documents. All this
success is due in large part to the company’s well-thought-out and
well-implemented strategies and systems.
you think the buyer is impressed? Do you think this operation could
command a premium price?
think through a very different scenario. The would-be buyer gets greasy
clothes, thanks to the oily handprints on your front door. The place is
dark, with half the light bulbs burned out, and stuff is piled
everywhere. Your “key employees” – such as they are - have been
micro-managed to the point of nearly being unable to think for
themselves. And with your high turnover, none have been around more than
two years. You print a current customer list and as you begin to review
it with your prospective buyer, you realize that your firm has a
first-name relationship with very few customers. In fact, you can’t
remember the last time that you – the company president – visited a
customer. Turning your attention to finances, you sheepishly admit that
profits are razor thin, cashflow is weak, and debt is piling up. When
the visitor asks about systems and procedures, you’re forced to
confess that most information is handed down by word of mouth. This
tells the buyer that one of your company’s potentially most valuable
assets – its information – goes home with your workforce every
watch with dismay as yet another once-promising buyer grabs his
checkbook and runs out your greasy front door.
difference between these two scenarios could boil down to just a few
things done better over time. A few regularly-applied disciplines. A
little more time taken. A bit more care taken. To borrow a quote from
Michael Gerber, it’s the difference between just working in
your business and working on
changes add up to big differences over time. The difference in selling
price between these two scenarios would amount to hundreds of thousands,
if not millions, of dollars.
your company and your net worth. Don’t squander an opportunity to
build real wealth.
Bill Collier is a St. Louis-based
business coach, consultant and speaker. He is the author of the book “How
to Succeed as a Small Business Owner … and Still Have a Life.”
His website is www.collierbiz.com,
and his email is firstname.lastname@example.org
may reprint this article in its entirety as long as you include the full
by-line that appears at the bottom of the article.