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Your Business: Think "Long-Term Net Worth"

Your 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.

When 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 screen yet.

If 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.

The 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 equation.

To 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.

Your 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.

So, what are these value-determining factors? Here are some general factors for virtually any industry:

  • People – especially key/management staff and leadership successors

  • Customer base/list/relationships

  • The company’s financial picture, especially profits, cash flow, and lack of debt

  • Operating systems

  • Proven strategies

  • Facilities/“Curb Appeal”

Paint 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. 

Do you think the buyer is impressed? Do you think this operation could command a premium price?

Now 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 night. 

You watch with dismay as yet another once-promising buyer grabs his checkbook and runs out your greasy front door.

The 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 your business.

Small 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.

It’s 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 bill@collierbiz.com

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