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Adopt an Investment Mindset & Increase Your Business Value In 5 Steps
Closely held business owners are particularly susceptible when it comes to getting caught in the trenches….working in the business rather than on the business. As a result, they become blind to how much their business is actually worth and the ROI they could be achieving. Fortunately, it’s not too late to adopt an investor mindset.
If we were talking about your stock portfolio, you probably wouldn’t think twice about hiring an investment advisor to track your assets. Considering that 50-70 percent of your net worth comes from your business, wouldn’t it make since to implement a similar wealth enhancement strategy when it comes to managing you company’s value? If you were to invest just 1 percent of its value into tools and expertise for the purpose of value enhancement, it wouldn’t be long before you would realize substantial results. Read on to discover a simple 5-step road map to follow when you are ready to start investing in your most valuable asset – your business.
1. Ready, Set … Business Valuation
You must have a thorough understanding of your business’s true value before you can truly begin the investment process. This knowledge will help you determine your general level of aggressiveness – similar to managing your investment portfolio. Additionally, conducting business valuations annually will help you determine if your existing strategy is working and whether adjustments should be made to yield greater results, such as gifting stock or selling the business.
2. Focus On Growth
Once you have identified the true value of your business, you are able to identify a solid plan to increase your company’s value. Focus on the top three drivers of business value:
Rate of return: Because investors view risky businesses as less valuable, you should work to identify (and then minimize) the risks in your business.
Sustainable growth: Monitor your company’s growth and develop strategies to manage existing efforts while creating additional avenues for growth.
Cash flow: Enhance your cash flow by increasing your gross margins and decreasing your operating expenses.
3. Prepare Financial Statements
Even though professionally prepared financial statements are not required of privately held companies, having yours compiled can help you maximize your investment because they allow you to measure your business against generally accepted reporting practices. They are particularly helpful when you want to secure financing or when potential buyers want to compare your business against industry benchmarks.
4. Plan For ‘What-If’
Review your buy-sell agreement and your contingency plan. Think of these plans as the last will and testament for your company. They will determine what should happen to your business assets if you die or become incapacitated. These documents should be reviewed annually and updated to reflect the current value of the business and any changes in the situations of shareholders.
5. Design Your Exit
Finally, all the steps of your business investment strategy will culminate in the execution of your exit plan, which will likely hinge on your personal financial and estate planning efforts. Your annual business valuations will help you determine realistic personal financial goals while providing you with insight to help you maximize tax benefits. Then you need to devote some serious thought into what will happen to your business once you have taken your leave. A proper succession plan will consider your goals, the goals of family members and those of other key personnel, mixed in with the realities of family dynamics and the existing business situation. There may be multiple options for an exit from the business, so enter discussions with an open mind.
Work With A Business Valuation Expert
Once you start allocating funds to facilitate the growth of your business, it won’t be long before you will begin to see the results you were missing while you manning the front lines. A great way to begin adopting the investment mindset is to work with a valuation professional that is fluent in succession planning. To get more information about your business investment strategies, email us at Malahat Valuation Group
Malahat Valuation Group