My firm, B2B CFO®, currently has 178 partners in 39 states with a combined 5,130 years of experience. One of the benefits of being a partner is it gives me access to many wonderful articles written by my knowledgeable partners to pass along in my newsletter. Due to this benefit, it has been awhile since I’ve written my own article for the newsletter. When the passion for a certain topic motivates me however, I write! With that said…
Before leaving for the office tomorrow, please consider this. The question is: would you like to increase the value of your business so that it’s the most valuable on the day you sell it? If asked the same question, a very high percentage of business owners certainly would emphatically say, YES! So why don’t the same percentage of owners run their businesses with this goal in mind every day, every week, every month and every year until they sell their business? It could be because many owners and CEOs get caught up ‘inside’ their businesses.
What does it mean, to work inside the business? Unfortunately, it means that business leaders are so involved in the short-term decision making of day to day operations that they are unable to make insightful decisions that also bolster the long term value of their company. A side effect of this is also that the business becomes so reliant on their involvement that if they are absent for even a day the operation suffers.
So what is it that drives long term business value? The following are some examples of key value drivers.
- A strong management team who can handle the business in the owner’s absence.
- Good financial controls to guide the business and ensure progress towards goals.
- Diversified customer and vendor bases. If long term contracts are in place with either, this will increase value.
- Well documented systems and processes in critical areas of the company.
Instead of getting caught up ‘inside’ the business, avoid making stopgap decisions simply for today. Ask yourself when confronted with difficult or even ‘easy’ daily decisions, will this increase the value of the company in the long run or are you just getting by doing ‘business as usual’? This decision making process requires long term thought and value creation versus simply solving this minute’s problems. It is not necessarily an easy conversion, but it will be worthwhile.
What results can a business running primarily through the filter of long term business value expect? A consistent growth trend, a healthy gross margin percentage that is expanding, better than industry average net income, and strong equity on the balance sheet to name a few. These are all good indicators that a business is focusing not only on seamless day to day operations but also on long term business value.