Over the past 30+ years, I have completed valuations for thousands of small businesses.
I have seen businesses rise to the top and become successful beyond the owner’s dreams. I have seen many seemingly great businesses with passionate owners fail. It’s hard not to question why.
Running a business is tricky. There is no cookie-cutter formula for success. For every “success rule”, there is an exception.
There is an overlying theme among successful companies. Many aspiring entrepreneurs are unaware.
The Illusion of Value
If you are a business owner, chances are that starting a business was the fulfillment of a dream. The decision to take that extraordinary leap of faith came after a great idea, being extremely dissatisfied at their job or as a natural progression for someone at the top of their field. A survey from Cox Business states – the biggest motivator for starting one’s own business is being one’s own boss.
Most business owners get consumed with working inside the business instead of working on the business. While business owners grind away on the product or service they offer, nobody is working on the business to increase cash flow and value. The result is one I’ve seen too often – a hard-working and passionate individual runs a successful business for many years but it does not have the value the owner deserves.
Hard work creates an illusion of value. The business has a great reputation and generates a strong income for its owner. Often, it is not the business but the business owner that holds the value.
This rude awakening dawns on many blissfully ignorant business owners when they are ready to move on; in whatever form moving on may take. I’ve seen many owners sell their business for much less than it was worth. They were too focused on working in the business to optimize it for maximum, repeatable cash flow and saleable value.
At lunch recently with a trusted business colleague, this topic arose. She and her business had an amazing reputation recognized throughout the community. I asked her if she thought her business had a high value if she were to sell it. “Of course, it does,” she answered.
I dug deeper. “So, if you were to go away for a month, without checking in even once, how would the business do?”
Her eyes widened at the disappointing reality. Her business wouldn’t survive without her for even a month. She now realized that her business didn’t have any true value… only she did!
Optimizing the highest valued company
Luckily for my trusted colleague, it is never too late to optimize, to achieve the highest value possible while providing higher repeatable cash flow on the way.
Creating simple and repeatable processes is the beginning. Consistency is the goal – processes are the building blocks to get you there.
The most valuable companies make their processes so simple that every worker is expendable. A company that relies on any single person loses value.
Create a dashboard of the metrics that are key to you. You’ll be surprised at how many reporting systems already have the data you need. Routine monitoring of your dashboard lets you quickly correct issues and duplicate successes.
Is it too late?
I have seen many owners in this situation adjust their operations to optimize their business value right up to the buzzer. Though better than completely ignoring the issue, the highest value will always occur when a buyer can see the impact of having your optimization in place for several years. Sometimes just a few changes increase business value tremendously. It may also lower the time you spend running the business.
Is your business valuable without you? Will it provide the value you want to live the lifestyle you dream of? Shouldn’t it? JBV Business Valuation helps businesses optimize their value. Contact us today to take the first step in creating the highest valued company possible.