Increase the Value of Your Business
These proven strategies are ones that every business owner and management team should consider in order to maximize the value of their business.
Every business owner and every member of the management team of every company, large and small, should be focused on one thing more than any other—increasing the value of their business. This article focuses on strategies that all businesses should be implementing, how best to seize opportunities for growth and whether or not it makes sense to take on a partner in pursuit of that growth.
Every business should endeavor to implement the following strategies in its process: Diversify your customer base. Businesses with many customers are worth more than businesses with customer concentration issues. Your biggest customer shouldn’t account for more than about 20 percent of your revenues.
Win recurring revenues. Businesses with recurring revenues and long-term contracts are worth more than businesses with lumpy or hard-to-forecast sales. It may require offering new products or services, but migrating to recurring revenues will pay off in the long run.
Employ a budgeting process. It is important to keep solid financial statements, forecast an annual budget and return to that budget monthly. Devise and follow a short, medium and long-term strategic plan in coordination with your budgets.
Be capital efficient. All companies strive for capital efficiency in tough times in order to survive. Great companies are capital efficient at all times. Manage your payables, receivables and capital structure actively.
There are other important value drivers of a business, but investors, acquirers and banks—every conceivable financial partner—will reward you for having tackled these particular ones.
Good companies get stronger in times like these by taking advantage of the environment to grow—organically, by acquisition, or both. But growth takes capital, so it’s important to identify which approach makes the most sense for your business.
A bank loan to expand a facility, make a small acquisition, or increase your working capital could make good sense. Even with all the talk surrounding the lack of business lending, loans are available to good companies, but there are several actions to take to generate a favorable outcome.
Don’t wait. Start building relationships with potential lenders now, before you need them. Take the time to build a relationship—invite lenders to your facility, present them a short overview of your company and the success that you intend to have.
Search broadly. While you may have a good relationship with your local or regional bank, it’s smart to broaden your scope to include the big guys. This is even more important in today’s environment. Make sure that you widen your search beyond your backyard.
Run a competitive process. Don’t simply rollover a loan from term to term without making sure you are actually getting a good deal. You are the client to the bank—make them earn your business as much as you would make a vendor earn your business.
Get help. Don’t be afraid to bring in an advisor or partner. Much like you are an expert in your business, investors and advisors are experts in corporate finance. Banks appreciate the value that a financial partner provides a business, therefore, financial partners often command the best rates, do not (and don’t have to) provide personal guarantees, and are able to negotiate flexible loan structures.
If you are seeking to grow your business and would appreciate the comfort of having a partner whose sole purpose is helping companies grow, then you might consider an equity capital partner. While every business owner has different goals, there are some common motivations for working with a capital partner, such as not having the capital to acquire a competitor; the owner’s children do not have an interest in taking over the business; a management team doesn’t have the funding to buy the business; the growing business needs the capital to expand; or the owner is ready to reward himself/herself after working hard for years.
Businesses in search of growth (in other words, all businesses) should explore their options and choose the right partner to help them drive value and pursue their objectives.