time wasters to avoid

What is Your Business Worth?

Build Business Value ProfitDid you know that up to 80% of an entrepreneurs net worth is typically tied up in his or her privately owned business?  So how much is your business worth and what are some of the key drivers that determine market value?  What you don’t know may hurt you.

According to Steve Wrubleski, Managing Director at A Neumann & Associates, most owners are universally wrong about the value and sale-ability of their business.   This is often due to myths around profit, uniqueness, and size.  Here are a few that may sound familiar:  My business is so unique who would want to buy it?  I’m a one-person business.   My company does not make a lot of profit.

Do I Need a Business Valuation?

A business valuation is a processed set of procedures used to estimate the economic value of a business.  Most owners recognize the need for transaction valuations.  These are done if you plan to sell, purchase or even refinance a business.  Valuations are also used to determine the tax basis for an owner’s estate and settlement in the case of divorce.

So do you need to wait for one of these events to have a business valuation?  No.  Many business owners have them done for strategic planning.  In other words, to help them determine the driving factors to maximize future value.   Better data and information leads to better decisions.  It’s a great business tool!

7 Business Value Drivers

As a business owner, you have an emotional attachment.  That’s normal.  But when it comes to business value, you need to look at it from a potential buyer’s perspective.  Here are some factors that impact business value – in a positive or negative way:

  1. Quality motivated management team
  2. Established, documented operating systems
  3. Above industry average profit margins
  4. No reliability on any one customer or vendor
  5. Attractive facility
  6. Realistic growth strategy
  7. Good and improving discretionary cash flow

If you want to build business value (and you should), here are a few questions to start asking yourself…

  • Is my business dependent on me – or a quality team with operating systems?
  • Do we sell on value and/or uniqueness – or price with low margins?
  • Are sales spread among a lot of customers – or are we too dependent on one or two?
  • Do we have multiple vendors for all your critical needs – or too reliant on one supplier?
  • Do I have a written plan for growth?  Is that growth sustainable in any economy or only during economic booms?
  • Do I have consistent financial statements – and understand the numbers, trends, and opportunities?

As a final thought, your reputation can also impact the long-term value.  Potential buyers will likely do an internet search.  Can people find you through the search engines?  Is your website a positive reflection of your business?  Do you have reviews from customers?  Are you in the news and part of the community?

How Do You Measure Up?

Curious how you measure up in critical areas?  My FREE business success checklist can help you figure it out.  Click here to access this free download.

Value

Business Value: 7 Ways To Maximize Yours

Have you ever wondered what your business is worth? While profitability will certainly contribute to the business value, many small business owners are surprised to learn that profit alone is not enough – until it’s too late.

If you want to maximize the business value today and the sales price in the future, you must create a business that will operate effectively without you. The more dependent it is on you, the less value it will have to someone else.

Whether you want to increase the value today, turn it into a passive income stream or sell it outright to fund your retirement, it’s time to start thinking like a potential buyer. Here are some areas you should consider:

Customer Diversity. If a large part of your business is dependent on a small number of customers, your business will have less value. Lose one of these customers and the sales and profit are at risk. Start focusing on diversification.

Systematization. A business where processes are streamlined and documented will always be more attractive and more valuable. Make sure you have written systems for all the critical business activities and daily operations so tasks can be done consistently and quickly by anyone. No one person, especially the owner, is vital to the successful running of the business.

Recurring and Repeat Revenue. All revenue is not the same. Revenue that is linked to contracts or agreements is more valuable. Repeat business, based on high customer retention rates, is also more valuable. Focus on retention and look to create some recurring revenue streams in your business.

Unique Products, Services or Technology. If others can easily replicate what you do, then your business will be perceived by others as a ‘me too’ business. Know what makes your business unique and communicate this uniqueness effectively. Your business will be more attractive – and likely less dependent on price.

Product Diversity. If your business is heavily dependent on one product or service, then future projected revenue may be riskier and less valuable. Look for opportunities to expand your products and services or package them in new or different ways.

People – Your Team. The right people, with defined roles and clear goals, are a key to getting results. Make sure you have a system for hiring, training and developing quality people. Ensure everyone knows the goals for the business and understands their role in delivering it.

Bookkeeping & Financials. Your financial records are a strong indication of how the business was run in the past. A good financial management system, like Quick Books, set up properly, maintained and updated will help you run your business better today – and influence a buyer in the future. If you are not sure how to set up your system for both tax preparation and decision-making, speak with your accountant.

If you follow the above tips, you’ll be able to achieve more sales and profit from your business today and maximize the value in the future.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com