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    Increase Business Value in 3 Steps

    Dollar signs, business valuationIf you are like most business owners, your net worth is likely 85% related to your business's value , (see earlier post) also link to – or the 'sweat equity' of your business. Because of this and, if you are like most entrepreneurs you have reinvested cash and profits in your company, your business's value likely will be a significant component of your retirement – so it matters.

    Determining what you need to retire comfortably and the relationship to business value isn't the subject of this post – if you need more information check out an earlier post on succession planning. This post will speak to increasing value, regardless of whether or not you're trying to use for succession purposes.

    1. Focus on one key differentiating metric relative to your peers as this will drive value and make this the focus of all improvement efforts.

    Companies that 'own' value in their segment fall into two categories. You can compete as a commodity and are more efficient in your use of assets relative to your peers (e.g. you manage inventory better, you have a better supply chain) or you compete on price (e.g. you are able to command a price premium because you can demonstrate sustained differentiation).

    2. Ensure that you are NOT the business.

    Companies that that have owners that are NOT the key person in the business – in other words they have professional management (at least a great CFO, COO, and Sales Team) are generally going to be more valuable and attractive than companies that don't. Even if you're not selling, you are more likely to drive the value of your business up by getting a great surrounding cast that is also interested in driving value.

    3. Consistently set and reset value goals.

    It's easy to set sales goals – unfortunately sales goals don't always translate into value. If you are truly interested in a liquidity event at some point, establishing an initial value and 'going for it' in order to double, or triple, can keep you focused on developing not only a higher sales target but also a better managed business with a higher value. The following link is a great survey we've developed to see how far you are from having a well managed company.

    If you're going to eventually sell your company you are going to need to at least set the bar at around $2,000,000 in value. Smaller companies of course sell all the time, but $2m really is the 'minimum' bar to engage a strategic or a financial buyer.

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