Maximizing the Value of Your Business

There are several strategies to build a better company and increase its value.

The overall value of a business is generally determined as a function of your earning and financial position and the inherent strength of your business. It is a common issue that two businesses with similar financial profiles are for sale on a different value just because of their off balance sheet items. Following are the core principals that separate good business from industry leaders.

• Build a deep management team

Successful companies have a good senior management team, but some others just hire one person capable of making critical decisions, putting their business in danger. If your company can not function properly without your daily supervision, then you need to hire and develop talent for the future of your business.

• Diversify your customer base

Your largest customer should ideally be no more than 20% of your revenues or profitability. If just one customer has a critical portion of your revenues then they own you. Your business will be influenced by any change in their market, and can dictate the terms of your transactions. The diversity in customer base will be an extra effort that will provide a significant reduction in your financial risk profile.

• Maintain quality financial information

One of the weakest areas in small and medium businesses is the lack of strong financial documentation. Audited financial documents provide credibility with bankers, insurance companies, etc, but most importantly prospect buyers. The extra money expense will be recovered in the short time period of sale.

• Develop a proprietary product or service

A unique product is certainly a key to have a position in your marketplace. You can ask your employee or customer to describe the difference between you and your competition and realize how good and different your products or services are. These differences can give you advantage pricing during good times and a customer loyalty in difficult ones.

• Focus on profitability

To measure your success in business you need to take into account pre-tax profitability instead of revenues. Another mistake is to limit profitability to limit taxes. Operation efficiency and profit maximization should come before tax avoidance. You can find legal ways to minimize your taxes using S-Corporation or LLC.

• Prepare and execute a business plan

Your small business plan should include economic, industry and company specific requirements, and decide how management will reach the goals that will help you to focus your business decisions and employees to specific targets.

• Seek the help of outside professional advisers

When you are planning to sell your business, an investment banker can ensure that you obtain the best possible transaction by re-stating your financials, preparing a memorandum that highlights the intrinsic value of your business, including off balance sheet items and quietly approache other buyers to ensure a competitive process.