A Cautionary Tale…
A client heard some horrible news: his wife was diagnosed with an illness that would end her life. Doctors advised that she should have 10-15 years of reasonable health before her early demise. This man is an entrepreneur. He turns the most difficult obstacles into opportunities. He didn’t sit and mope. He decided to cash out his business and start the life he and his wife had always dreamed about. The electronics wholesale company he started a quarter of a century ago was renowned in its industry and very profitable. He expected a big check when selling it. Our valuation disappointed him. The company’s “Fair Market Value” was much lower than he needed and deserved. This happens way too often. Entrepreneurs who went the extra mile for decades do not see the return they expect when selling their business. All the nights and weekends at the office – were they worth it?
Remembering the Dream
Remember the dream you had when you first opened the doors to your brand-new business? The great life you envisioned? Has that dream become a reality? Countless hours of working inside the business blur that vision. The focus is on projects not on the steps needed to take to realize that dream. When the electronics company owner wanted to sell his business, he saw his mistake. The business had value, but most of it is tied to him!
Optimize Your Business
Entrepreneurs: take a step back to look at your business. By optimizing your business, its value and the cash flow it generates will increase tremendously.
Processes
In 30+ years of business valuations, the most common profit leak I see is a lack of relevant reporting and processes. A recent survey reported 42% of firms believe outdated, inefficient business processes and frameworks contribute to a decline in employee productivity. This means lower profits! “Set it and forget it” does not apply to either how your team operates or the information you need to best guide your business. Optimizing your processes is not just eliminating redundancies, automating simple tasks, improving communication and cutting unproductive tasks. These are important, but the crucial ingredient is getting timely information that easily shows how you’re doing.
Measure the right things
Business is data driven. There are analytics for everything. It becomes overwhelming – information overload. Managers focus on so many analytics they lose focus on what’s important. There are a small number of key metrics that will improve profitability. Decide which analytics that directly affect your company’s profitability. There is not a cookie cutter answer to this challenge. You built a business that serves a particular niche or provides a unique product or service. Will the key indicators be the same for you as for anyone else? No!
Delegation
Many of the great entrepreneurs I work with are solopreneurs – they work alone. This can be a great model for those looking to dissolve their business when they move on. Isn’t that like leaving money in the table? Delegating responsibility adds value to a business. The less your company needs you to generate profits, the more valuable it becomes to a buyer. (Learn more about delegation as a leadership style here) No one employee can be indispensable.
Optimizing Business, Optimize Life.
Business optimization is what separates the most profitable companies from the rest of the pack. Optimization can add as much as 10% to 20% (and more) to the owners’ take-home pay. Fact: the same processes and key metrics that optimize your business and cash flow will enhance the “Fair Market Value” of the business. A buyer will pay more for a well-run, optimized business. With over 30+ years of business valuation experience with thousands of businesses, JBVal has the expertise to spot and plug profit leaks. If you need a fresh look at this, contact us today.