Creating Value – What's Your Business Worth?

If you business is a significant portion of your retirement portfolio, and you haven’t sold it yet for cash, then there are several important things that you can do to increase its value (and your wealth).

Business value depends on several things.

Here is a simple formula:

Value = Building a management team so the business can run without you +
having information systems that can scale up with growth and provide real-time operating information +
developing strategies that maximize value to customers and get you out of the commodity business +
great results as measured by EBITA and growth.

Here is the logic: Your information system will give your management team feedback on your business strategy and that drives EBITA.

Assessment: Score 1 for ‘we’re terrible’, 5 for ‘average’ and 10 for ‘greatness.’

  1. How much of the day to day are you involved in or can the business run itself while you travel for two to three weeks without checking in? Score 1 if you have to make all decisions, score 5 if you can go away for a week but are checking in daily, score 10 if you can go away for a couple of weeks without a technology umbilical cord.
  2. Does your information system show you how many sales you have booked, how long your production is booked into the future, what your installation schedule is into the future, and what your anticipated cash flows will be on a weekly or monthly basis?
  3. Do your customers grind you on price (score 1-5 here) or are they delighted with your services and standing in line waiting for you to help them (score 10 here).
  4. Is your EBITA less than 5% of revenues (score 1), between 5% and 10% (score 5) or greater than 10% (score 10)

Your score: Out of 40

Below 20: you have lots of work to do. Start anywhere, all four parts are important. There is no value here.

20 – 30: You have some potential but need to improve in one or two main areas to have a stronger business. It will be a tough sell.

30 +: You are in pretty good shape but need to strengthen your weak area(s) to maximize your value and attract the best offer.

Improving the value of your company by increasing the financial results and creating an independent management team will make the business easier to sell.

If you have to be there all of the time, you don’t have a business, you have a job. And it’s very difficult to sell a job, in any economy.

Copyright 2011. All Rights Reserved. Phil Symchych

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