Creating value. It is the number one thing you need to do as a business owner to position your company to be attractive to a potential buyer and be able to exit on your terms when it is most advantageous for you.
First: let’s talk about that word, “advantageous.”
As a business owner, you know that the best-laid plans are just that: plans. You may have a dream to exit your business the day you turn 65, with a future of sandy beaches on the horizon. For others, an exit at 40 sounds nice, with a second act of unlimited possibility.
But what if the right buyer is not around at age 65? What if the market is not right at age 40? A better question: what if the right buyer and market presents itself when you least expect it?
One of the main reasons to drive value in your business is to meet your personal, financial, and business goals when you exit. And if an advantageous opportunity presents itself to do just that—even if it’s ahead of schedule—you want to be ready.
Think about it like Jimmie Johnson thinks about racing. On the final lap, your plan might be to make a pass in turn 4. But if you are up against a car that you can beat in the straightaway, it might make sense to make a move earlier to win.
If you are ready to drive value and prepare for exit, you must focus on every business’s four intangible capitals.
How scalable is your business, with or without you?
Use the answer to that question to find a multiplier—what multiple of your company’s revenue could your company sell for?
A potential buyer wants to see that ability to expand and be rewarded for their initial investment.
Structural capital is the secret sauce behind scalability. How easily does the flywheel spin? How strong is/are your strategy, systems, processes, capital, and financial structure? How can you apply what you do to new clients—and the same ones, over and over?
It might be more straightforward with you at the helm because you show up to work every day and make it happen.
That is not capital, though. That is you running your business. You need a way to convert your strategy, systems, processes, capital, and financial structure into a transferable form. That is when your best practices—what you do each day—become company property.
And that value multiplies what an owner is willing to pay for your business.
If you are just starting to create value, thinking about your company’s structural capital can be difficult. After all—you are in the doing phase of business and likely finding it hard to honestly reflect.
Structural capital has four real areas:
For each area, ask yourself:
Not sure where to start? Having difficulty taking an honest look at your own business? A Certified Exit Planning Advisor (CEPA®) can help you answer these questions and drive value.
Interested in learning more about Value Acceleration? Visit Amazon to buy a copy of Walking To Destiny: 11 Actions An Owner Must Take To Rapidly Grow Value & Unlock Wealth by Christopher Snider.
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