Seven Questions Every Small Business Owner Should Answer

A company with strong value drivers can demand (and receive) a higher multiple on the same amount of EBITDA than can a company with average value drivers.  — John Brown, The Business Enterprise Institute (BEI)

Almost all of us consider the future and invest in the stock market either directly or through retirement plans to position ourselves and our families for the inevitable future.  While the above quote refers to investing in the stock market, the principle applies to your small business.  As you look ahead to the future, every small business owner should pay careful attention to the value drivers behind the business – ensuring the business portfolio increases over time.

In their book Execution, Ram Charan and Larry Bossidy speak about successful execution as “exposing reality and acting on that reality”.  So, as you consider your business investment, ask yourself the following “Value Driver questions:

 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, are 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 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.  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 no-where.

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.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Wealth Management for Small Business Owners

Small business owners are at times neglected by the wealth management community as the business is commonly (not always) the owner’s largest asset rather than a portfolio of stocks, bonds, and mutual funds. You’d be well-advised as a business owner to engage a Financial Advisor who is proactive and experienced in factoring your future plans for the business into your overall plan for managing your wealth.

Impactful wealth management for you as a business owner would include at least these elements of exit planning:

• Clarifying what “exit” means to you. For example, do you want to leave entirely at some point, or gradually over time?

• Clarifying your financial, values-based, legacy goals, and what role the business needs to play in attaining your goals.

• A financial needs and gap analysis with an accurate valuation (not back of the envelope - meaningful planning requires accurate data) of the business. How much $$$$ will you need to do everything you want to do after the business? Is there a financial gap? Will that gap need to be closed by increasing the value of the business?

• Personal risk management including asset protection, insurance planning, tax planning.

• A current estate plan — a business owner cannot do exit planning without doing estate planning.

• A plan to preserve the value of the business (typically a small business owner’s largest asset), and a plan for it to survive during unexpected events of your permanent disability or death.

• An appropriate plan for managing financial assets resulting from the successful sale or transfer of your business.

Exit planning is wealth management for business owners that requires assessing, preserving, and building the value of your largest and most complex asset…your business.

Contact us at email@ennislp.com for assistance in building sellable business value or planning your eventual exit. Please also consider investing 15 minutes in completing our FREE Exit Readiness Assessment. We do not ask for confidential information.