IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Terry Frisk of B2B CFO (www.b2bcfo.com):
Top 10 Ways to Increase Business Value
There are many ways to measure performance of a business including gross profit, net income, cash flow and key performance indicators to name a few. However, one measure that should be included is business value which is a measure of what a business would sell for in the open market. While many factors of business valuation cannot be controlled by the owner (like economic conditions, competition, government regulation, etc.), focusing on factors within their control to maximize the value of their business will help reduce the impact of factors they cannot control.
In addition, steps taken to increase the value strengthens the business and results in greater overall success. Even if a business owner is not contemplating selling his/her business, you never know when the opportunity or need to sell, merge, or transfer the business may arise. Being prepared for these situations will result in a better outcome. What should a business owner do to increase business valuation? Below are my top ten strategies to maximize business value:
- Establish Goals – This provides a roadmap for growth. It also helps ensure everyone in the organization is headed in the same direction.
- Focus on Profitability – Value is added through maximizing profitability, not sales. Quite often major increases in sales will result in reduced profitability or even losses due to the company’s inability to keep pace with the increase. Instead, focus on higher margin products and customers.
- Manage Cash Flow – Cash is the lifeblood of a business. Reducing the cash conversion cycle (i.e. the period of time between when the cash is spent producing goods and services to when cash is collected through the subsequent sale) improves business health while reducing financing costs.
- Build a Strong Management Team – One person cannot effectively manage a growing company. A strong management team that can focus on the key areas of the business will lead to greater efficiency adding value.
- Monitor Key Performance Indicators – Performance improves when it is measured. Compare the KPI’s of the business with industry averages. Use this information to improve performance.
- Make Your Business Unique – Define what separates your business from your competitors and focus on these items. Do you have unique products or processes? Obtain patent protection to guard against competitors knocking off your competitive advantage.
- Expand Your Customer Base – Having a diverse customer base reduces the reliance on 1 or 2 major customers, the loss of which could have a devastating impact on the company.
- Maintain Accurate Financial Records – Accurate financial records will not only help you manage the performance of your business, but also help potential investors or financiers evaluate your business.
- Work with Professional Advisors – Seeking professional advisors will provide you objective counsel as you grow your business and help you avoid costly mistakes.
- Work ON Your Business, Not IN Your Business – Business owners should focus on ways to grow their business and avoid getting caught up in the day-to-day operations.
Each business has its unique set of factors that impact value. There may be other factors in a specific business that the owner should focus on. Identifying and concentrating on improving factors that drive company value will result in a stronger more successful business.
If you have questions relating to the content of this article or the services provided by B2B CFO, Terry Frisk would welcome the opportunity to answer them. Mr. Frisk can be reached at (208) 908-8946 or TerryFrisk@b2bcfo.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.