Business Value

Tips for Maximizing Business Value

Burying excessive personal expenses in the business financials can lower business value!

The most popular method of valuing a business uses a multiple of earnings over a period of years. Business owners should be aware of that while attempting to reduce the bottom line with personal expenses to minimize taxes.  Though there are a number of deductions that may be added back to determine true cash flow, not all add-backs are considered legitimate by buyers or lenders.  Being too aggressive in minimizing taxes today may cost a business owner big dollars at closing.

Some businesses may need a whole new direction!

Unfortunately, there are businesses whose market has changed so drastically that their products or services now have limited demand.  And it might not be the slow economy!  Those business owners may have to consider a whole new business model and get into the research and creative thinking mode.  A good starting point is searching ideas on the internet or getting professional help to reposition the business.

“You can’t always get what you want”

The title to the 1969 song by the Rolling Stones seems to echo what the market is telling many business owners these days.  There is no question that prices for many businesses are down and for various reasons.  But if there are offers on the table a business owner must take a hard look and be realistic as to what has to change, the business or the economy for the price to “sing along” with expectations.

Leases can make or break the sale of a business

The lease terms of the business space can be a major consideration for a buyer.  For example, a retail business with a long term lease on a good location can be attractive.  But a long term lease on a business needing more space to grow could be a detriment.  Or there can be concerns for an expiring lease when the landlord might demand a large increase.  When it comes to negotiating a new lease, business owners must carefully think through the timing of their plans for exiting their business.

Business decisions

Let’s make decisive business decisions

Decision-making is a crucial part of good business. The question then is ‘how is a good decision made? One part of the answer is good information, and experience in interpreting information.

Managers can be trained to make better decisions. They also need a supportive environment where they won’t be unfairly criticised for making wrong decisions. A climate of criticism and fear stifles risk-taking and creativity; managers will respond by ‘playing it safe’ to minimise the risk of criticism which diminishes the business’ effectiveness in responding to market changes. It may also mean managers spend too much time trying to pass the blame around rather than getting on with running the business.

Decision-making increasingly happens at all levels of a business. The Board of Directors may make the grand strategic decisions about investment and direction of future growth, and managers may make the more tactical decisions about how their own department may contribute most effectively to the overall business objectives. But quite ordinary employees are increasingly expected to make decisions about the conduct of their own tasks, responses to customers and improvements to business practice. As a result careful recruitment and selection, good training, and enlightened management are important supports to good decision making.

How do you make the best possible decisions, knowing they will have an impact on your company's future?

There are strategies you can use to avoid common pitfalls and hone your decision-making skills.  Making better, faster decisions will help you take advantage of business opportunities and avoid pitfalls.

1.     Review the problem/decision in a broad context to include as many perspectives as possible. But don’t procrastinate just to get another opinion.

2.     Make decisions as much as possible on facts rather than emotion. It is good to challenge your gut instincts; use objective data to reinforce decisions.

3.     Don’t hesitate to challenge the status quo. Staying in your comfort zone in order to be comfortable may lead you on the same path. Change does not necessarily take more effort.

4.     Be open to others opinion but trust your own ability and ability of employees to make a well-reasoned decision.

5.     Recognize that some constraints may influence the decision; financial constraints, practicality, and lack of resources to implement the decision may influence the path taken.

Decisions are not taken in isolation and the effects of any decision will depend on reactions of others. Competitive behaviour should be anticipated and can influence choices. In the end, the review process needs to be completed with minimum delays and decisions finalized. Respect for action taken with a firm unwavering approach or allowing responsible employees to decide will earn respect from the organization.

Success factors

Success factors in business

Here are some of the key factors leading to success in business.

1.     Plan for success. A good plan increases your chance of success by defining objectives, framing costs, forecasting revenue and defining risks.

2.     Management strength: a strong management group is critical. Entrepreneurs should have the confidence to surround themselves with strong people; this will pay dividends in productivity and growth of the business. Those owners who seek individuals who will follow and not lead will be constrained by their own failings.

3.     Develop a network. Networks of peers can be a powerful resource for support and direction.  It is great if you develop both a network within the organization and a network of peers outside of the business.

4.     Consumer focus. An unwavering commitment to the consumer is invaluable. Understanding the consumer’s wants and needs provides the best way to gain customer loyalty. Repeat business is the lifeline to continued success. This also strengthens your reputation in the marketplace.

5.     Continuous improvement. In order to stay at or near the lead in your market position there need to be continuous product improvement. Innovation and keeping pace with technological improvements provides that cutting edge performance. This also enhances productivity and profitability of the business.

6.     Know your strengths. An honest approach to management of the business can help generate growth. Don’t waste time chasing dreams or ill-conceived ideas that do not match your core values or strengths in the business.

7.     Manage time use. Entrepreneurs need to act with a sense of urgency to develop ideas. Learn to manage your time and include leisure activity. If plans are not working adapt to changes that will work even if it requires acquiring skills that may be missing in the organization. Working smart produces quality results which outperform quantity.