What makes buyers pay top dollar for your business? More to the point: If you decide to sell your business what can you do to get top dollar for your business?
The answer to those questions may be simple: business value. But the actions to take when a business owner is trying to increase business value is not as simple. One way to increase the business value is through financial measurement and management.
There are four ways to take on this task:
1. Understand and use existing financial information
We frequently work with successful business owners to make better use of their existing financial information so that day-to-day activities and requirements don’t overshadow broad and strategic planning. When your client started their business, they had a strategic vision and they can reconnect with that vision by regularly setting aside a reasonable amount of time to track their company’s performance from an objective and quantitative perspective.
2. Manage and reduce company debt
Company debt is not inherently negative. In many cases, loans from outside financing sources facilitate growth more quickly than can be supported through internal financing of business opportunities. On the other hand, debt can also create additional stress and prevent growth by tying up needed cash flow. For these reasons, we often recommend that owners create strategic plans to manage the debt that supports business growth (and in turn, supports growth of business value) and to reduce debt that stifles growth and value.
3. Implement financial controls
Building value without specific financial goals and measures usually results in a less efficient path to success. Performance goals and limits provide the framework for successful operations and a more valuable business. As an owner develops quantifiable measures for their financial commitments and expectations, they create a more dynamic relationship between internal financial decisions and objective business value.
4. Increase employee productivity
Owners may feel frustrated because they feel they are too involved in the day-to-day operations of the business or have a nagging feeling that employees could demonstrate greater productivity and efficiency? Owners can work with their management level employees to drive the productivity of these employees. When employees consistently perform at the highest levels of productivity and effectiveness, the business deserves the premium value that buyers associate with a high level of productivity.
It is important to take note of a critical mistake that can be made—a business owner’s understanding of financial systems and controls may not grow at the same pace as their business grows. When a business grows, finances become more important and that means there is more at stake and more sophisticated measurement tools and controls are needed.