Valuable. That is the way we all see our assets, whether it be our home, investments or as a business owner, the business where you spend significant amounts of time, effort and commitment. This dedication is commendable, however, often amongst the whirlwind of the day to day, it may be a challenge to rise above that to appreciate if all that effort is adding value, or just keeping the doors open. With COVID-19, in some hit hard business sectors, it is about survival, value building and growth can come later.
So, how can a business grow, and specifically, grow in value?
You could buy another business, a bolt on acquisition, one that compliments your existing. This approach can instantly drive growth and increase revenue, rather than building from scratch and the corresponding time it would take to get to the same level.
Advantages of this also include access to skilled people, you are gaining a depth of skills that may not be achievable otherwise or that would cost a significant amount of time and money, if possible, at all. The Intellectual Property (IP) that comes with an existing business, think brand names, domains, social media, operating processes/systems, patents/trademarks, customer database etc. commonly included in what we call, Goodwill.
Goodwill is a significant component of business value, this includes intangible assets as above, for which the value cannot be separately identified and sold, transferred, licensed, rented, or exchanged. Sometimes, the value of certain of these can be split out, but, with small business, this is unlikely.
Increasing the value is not simply expanding sales, and/or cutting costs, it is about:
- Having a goal and a plan
- The business should not revolve all around the owner, have a manager/management team, with oversight/low reliance on the owner, avoid key person risk
- Invest in IT, financial reporting/management systems, e.g. MYOB/XERO, stock control and job costing systems
- Work with your Accountant and monitor finances, cashflow is important, positive cashflow (the cash a business generates after costs) is vital,
- Document your systems and procedures
- Ensure everything is scalable
- Build annual recurring revenue
- Customer spread, only having a handful of customers is a risk
- Identify your competitive advantages
- Expand new customer segments
- Seek Government grants (ask your Accountant!) to support new equipment spending or building distribution.
- And always have a plan for life after an exit, goals are very useful!
For a confidential discussion, give Kent Aughey a call, 0408 810 229.