Business Value Alert
In general: Business Value = EBIT (Earnings before Interest and Tax) x Sale Multiple
Therefore, you have 2 main strategies for increasing the value of your business:
Increase EBIT. Higher profits mean people will be prepared to pay more for your business.
Increase the Sale Multiple. You can increase the Sale Multiple by DECREASING any risks associated with your business, thereby making the future cash generated by your business more certain. The main strategy to do this is establishing systems in your business so that your business can operate properly without you.
A higher business valuation means better RETIREMENT OPTIONS for you when you sell your business.
Immediate Strategies that you can implement are as follows:
- Cashflow – Proper Cash Flow management is vital to ensure your business has a future. Review the Cash Flow Cycle for your Business. Select the quickest and easiest area to work on, and immediately make changes to reduce your cash flow cycle. Eg: reducing your Sales invoice due dates from 14 days to 7 days or follow up on unpaid invoice the day after it is overdue.
- Sales Growth – Ensure your business offerings are clearly DIFFERENTIATED from your competitors. Make certain these differentiation points come through loud and clear in all of your marketing and advertising. In these uncertain financial times, instead of focusing on the benefits of your products / services, emphasise the additional losses your customers will experience if they don’t use your products / services.
- Profit – Have systems in place so that you know each week whether you are ON TRACK to meet your annual PROFIT TARGET. You can then take IMMEDIATE ACTION to correct any problems or inefficiencies that may occur, rather than letting these go on for months and erode your profits.
- Your team – Your team is one of your greatest assets. Run regular team training sessions for your entire team. Break these sessions up into technical training (about your products / services), customer service training, and internal administrative training. Keep investing in your team.
- A plan in place – Ensure that you have a proper Strategic Plan for your business. Having proper financial targets and knowing why you are in business and where you are heading is ESSENTIAL if your business is to out-perform its competitors and continue generating good profits in these difficult financial times.
- Business Value – Realise that the point of having a business is to SELL IT (even if you don’t want to right now). Ensure that this principle influences every business decision you make. Ensure that your business can run without you. It will then have a much higher value.