8 Ways to Build Value into Your Business Today
by Scott Danger, CPA CVA
Building value into your business generally means increasing its cash flow and reducing its risk. The truth is, it’s more than a pre-sale best practice. Not only can it help you weather personal or economic storms but also it can give you more options if you were to sell your business earlier than planned.
No one knows what the future holds. To help you be prepared no matter what, here are 8 ways to start building value into your company today.
1. Limit your involvement.
Can your business run without you? If not, consider this: staying involved in all aspects of your company—such as relationships, sales, manufacturing, research and development—can increase its risk. Ultimately, a buyer isn’t buying you; they’re buying the company. Empowering your employees to handle your responsibilities can help to put more value into your business and not on you.
2. Strengthen financial controls and processes.
Having year-round reliable and accurate financial statements can go a long way toward increasing your company’s value. Of course, you can’t have these without solid financial controls and processes. To start, be sure you understand your processes; even a small change can make a big difference. Pinpoint the areas of your greatest profitability. When you know what you’re good at, you can capitalize on it and drop the things you’re not good at.
3. Reduce inventory and speed up collections.
The idea is to efficiently run the financial side of your business to reduce the amount of working capital it needs. Every business needs cash, inventory, receivables, and also has payables. It’s important to pay your bills on time while regularly turning inventory and collecting receivables. This keeps a buyer from having to come up with cash on the purchase.
4. Diversify sales and lock in customers.
Beware of putting all of your eggs into one basket. Try to keep each customer from accounting for more than 10% of your sales. Put an end to the “owner handshake.” Sign contracts and lock in agreements, and make sure they are transferable.
5. Pay attention to your company culture.
A forward-thinking culture leads to innovation. This can reduce employee turnover and increase employee engagement, both of which drive value. Look for ways to be a leader in your industry and always look for growth opportunities.
6. Clean up tax issues.
This is especially true if you have tax issues with other states, such as those related to sales tax or income tax filings. Check out this article about the State and Local Tax issues and the recent changes that could impact your business.
7. Make your business presentable.
Or, as I like to say, paint the front door. Clean up your business and organize it. This goes for your operational processes, too. Taking steps to eliminate waste in your processes can increase the value you provide to your customers and ultimately increase the value of your business.
8. Consider key acquisitions if you have the time.
Many times, size does matter. Keep in mind that larger companies tend to drive higher sale multiples. A purely hypothetical example: If you have a cash flow of $1 million, you might be able to sell for 5x your cash flow. If you have a cash flow of $100,000, you might be able to sell for only 3x your cash flow.
We’re here to help.
Implementing these value-building initiatives can feel like a tall order when you’re in the throes of running a business. But even a small step toward creating value can help to prepare you and your business for whatever the future may hold. If you’d like to explore ways to build value into your business, please contact us today.