3 Exciting Ways To Boost the Value of Your Business

Most business owners are buried in the day-to-day operations of their business and don’t focus on the value of the business until it’s too late.

In fact, many do not start researching the value of their business until they are ready to sell it. This is much too late! All too often I’ve seen business owners learn too late what they should have been doing with their business in order to maximize the value of it.

What usually happens is the business owner meets with a business broker to make the sale happen. The business broker then delivers some unexpected news.

First,
 the value of the business is much less than what the business owner thought.

Second,
 there is a lot of information a potential buyer will want to see, like financial information, metrics, marketing statistics, sales forecasts, customer analysis, product line contribution margin, forecasted information, benchmarking comparisons, employee statistics, and written policy and procedures.

Third,
 the buyer will likely require an employment contract with the business owner because it is the business owner who makes the business run on a day to day basis. If the business owner goes away, then the business could too.

You can see why a business owner may get discouraged. The good news is that this is preventable!

Here ‘s what business owners can do right now to maximize the value of their business:

1

Regularly value the business

The biggest mistake a business owner can make is failing to value the business regularly. Public businesses are valued daily in the stock market. Why don’t non-public businesses do this? Without a professional valuation, the business owner is only guessing at the value of their business – which is usually grossly overstated.

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2

Focus on systems

Real businesses have documented systems for sales, marketing, production, delivery and administration. Start your documentation early and make sure every employee is trained based on the documentation.

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Get out of business

The typical business owner is the business. So when the business is sold, the business owner is selling himself as well – usually in the form of an employment contract. Focus on hiring employees who can help you work your way out of the day-to-day of your business. Then when you go to sell your business, you are truly selling your business with no strings attached to you.

This is what makes this so exciting

It is completely within an owner’s control to impact the value of their business. Plus, these things that increase the value of a business can also increase the current income and free up the owner’s time.

Start by identifying your long term business strategy. A business strategy is not the same as a business plan that the bank wants to see when you first start your business. A business strategy is one in which a specific goal is identified, such as sell the business in 5 years for $5 million.

A business strategy then identifies what is needed to meet that goal. For example, who are the potential buyers of a $5 million business and what makes the business valuable to those buyers? Use this information in your day-to-day activities to reach your goal.

Tom Wheelwright, CPA

To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. If you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

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