Most small business owners invest in the stock market, either directly or through retirement plans, with the goal of future financial security. However, not every business owner pays the same level of attention to the key drivers behind the value of, what is often the largest asset in their investment portfolio, their business.
In their book Execution: The Discipline of Getting Things Done by Ram Charan and Larry Bossidy, they speak about successful execution as “exposing reality and acting on that reality”. These questions will help “expose reality” as we begin a new year, regarding your plan for building and growing the value of your business.
1. Do I have a healthy management team? It's often been said that people are our most valuable resource. Experienced leadership, that understands the business, as well as the culture of the organization, is critical to the ongoing success of the business. This is also one of the key factors behind developing business value when it comes down to selling your business. Cultivating these employees, and ensuring that they remain even after you sell the business is significant to the events or buyer/owner of the business
2. How effective are my operating systems? Human resources, personnel recruitment and training, asset control, production control, and performance reports are all the key ingredients of healthy operations within any organization. If these internal mechanics are not running well, this could have significant negative consequences on the value of the organization.
3. Are my margins equal to or better than the industry average? If not, what actions can will it take to get them there?
4. How diverse is my customer base? Having one's eggs in one basket is always a risk. Having a key single customer that has more than 10% of total sales obviously is a downside for a business. Long before being ready to sell it is helpful to take a look at this and pursue diversification.
5. Is my facility in “ship-shape”? - keeping our home reflects our values and our priorities. Similarly, keeping our business facility in a sharp condition reflecting professionalism and effectiveness is critical to establishing business value. It was so into an outside third party, first impressions are significant. They were plucked attention to the small details.
6. What is my growth strategy? The roadmap for growth needs to clearly laid out, risks identified, and goals established. The future cash flow, value, and well-being of your employees is dependent on a vision for the future codified into actionable steps. The plan alone will not get you there, but no plan will get you nowhere.
7. Do I have control of my numbers? At the end of the day, you need to understand the financial health of your business.
Exit planning should begin the day you start your business. And, at the core, or center of exit planning is maximizing the value of your business. Just as you manage the value of your 401k or investment portfolio, investing time, energy, and thought into building the value of your business will position you to exit in the manner you desire. Get started today by exposing reality and assessing your business value drivers.