8 Ways to Build Value in Your Business: Tales from the 17% Club
For the last 7 weeks, I talked with 8 business owners who successfully transitioned their businesses and are a part of the 17% Club on the Maximize Business Value Podcast. 83% of business owners who want to transition their business fail to do so. Here is the summary of the answers to one of the questions we asked: What’s the ONE most important thing you recommend business owners do to build value in their business?
1. Be quick to understand your business’ Value Creation Revenue (VCR).
The faster business owners do this, the faster they are going to create clarity and simplicity which yields to accelerated growth. Simplicity is frequency + clarity. Once you understand what drives value in your business, then you need to constantly communicate that to your team. In return, you need them to give you feedback on what you just said. Increase the frequency of conversations you have with your employees. Constantly create clarity. Learn more about VCR - Value Creation Revenue on a blog that David wrote here.
David Wible - Episode 71 Tales from the 17% Club.
2. Run your business day-to-day as if you're going to sell it tomorrow.
That doesn’t mean start cutting corners and expenses and so on. Instead, build the business and make decisions that make the business stronger whether it's top-rating your people, investing in systems or back-end processes or marketing - all the things it takes to run a business. Do those things all the time and you will maximize your value on the way out. I’ve watched businesses being purchased. Some business owners get huge multiples and it is tied to processes. I talked to the seller about how he got such a great multiple and his buyer owned three other companies that were similar and were disasters and they took all their systems and processes and got a great return on investment right away, so buyers really attach value to that. It is really hard to do when you are in the business. I kept saying we had a good year but we don’t need to get saleforce.com because that’s going to be very expensive and I’d much rather have that money in the bank. The better way is to re-invest in the company. When you have a good year, don’t be afraid to do that. It really pays dividends. Dave Casey - Episode 72 Tales from the 17% Club.
3. Know your numbers.
It took me 20 years to figure out the difference between the top line and the bottom line. That is where the value comes from - looking at the numbers. As much value and effort you have put into creating employee satisfaction, client satisfaction, (both of those are extraordinarily important) but the first question from a buyer is going to be about your financials. Know the numbers. Run a good financially stable business through your financial statement. Get financially literate. Mike Rose - Episode 73 Tales from the 17% Club.
4. Think about your Exit Strategy...NOW.
The vast majority of business owners don’t think about exit until they are burnt out or over it. Educate yourself on creating value in your business. What does it take to actually create value? Pretend you are going on the market in a year, even if your plan is to do it 20 years from now. Talk to knowledgeable people. Look at your business and see where the weak parts are and figure out how to build value. We have done that. And if something were to happen today, we are ready. It’s a great feeling. When you do this, you are going to make more money, you are going to have more fun as an entrepreneur. Nikole Rose - Episode 73 Tales from the 17% Club.
5. Be a person of principle.
Ralph Waldo Emerson is quoted as saying, “As to techniques there are a million and then some but principles are few. The person who embraces principles can successfully select his own techniques. The man who selects techniques, ignoring principle, is sure to have trouble. Be a person of principle."
Mike Muhney - Episode 74 Tales from the 17% Club.
6. Hold out for the good folks and then keep them.
Hold out to hire great people and then invest in them. Too often, business owners have a position they need to fill and then they hire the least worst person who applies for the job. Hold out for someone who is not just good but really good. Somebody who is going to be able to move your business forward, not just fill a gap. It all starts with that very intensive, methodical, conscientious hiring process. Hold out for those folks and then keep them around by investing in them. Jim Roddy - Episode 75 Tales from the 17% Club.
7. Invest in your company and it can yield long-term benefits.
Short term sacrifices can yield long-term rewards. Don’t be penny-wise and pound foolish. Make investments in your business and your people whether that be education, training, whatever. Invest in the necessary tools of the trade: technology, professionals, business development. Don’t suck your company dry because you want another shiny what not. Invest in your company and it can yield long-term benefits. - Beth Denton: Episode 76 Tales From the 17% Club.
8. Plan for your exit and understand the value of your business.
Get ready sooner than you think. Life happens. You never know what is going to happen to you or one of your key people. Or an offer is going to walk through the door. Or you become disabled and can’t work. Or worse, the death of an owner. Get ready sooner than you think. Even if you plan to hold your business for 20 years, fine, understand what your exit needs to look like. Start preparing for it now and understand the value of your business. You have more fun in your business and you create more value in your business. - Tom Bronson: Episode 77 Tales From the 17% Club with guest host Jim Roddy.
ABOUT THE AUTHOR
Tom Bronson is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that dramatically improve business value that was developed during Tom’s career 100 business transactions as either a business buyer or seller. As a business owner himself, he has been in your situation a hundred times, and he knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Want to chat more or think Tom can help you? Reach out at email@example.com or check out his book, Maximize Business Value, Begin with The Exit in Mind (2020).
Mastery Partners, where our mission is to equip business owners to Maximize Business Value so they can transition their business on their terms. Our mission was born from the lessons we’ve learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed.