As discussed throughout this series, most of us are so busy focusing on what needs to be done today that we forget to raise our heads to look forward to next month, next year, or five years down the road. However, to ensure continued success of your business, forward-looking planning is imperative. One area to consider is how to significantly increase the future worth of your company. There are a number of ways to work towards an increased value.
- Purchasing new equipment to increase efficiencies. Purchasing new equipment can either be a good management decision, or a bad one. For example, if a new pickup is purchased simply because the owner wants to look cool, that might not be the best reason. Conversely, if a new machine is purchased because it will increase efficiency and reduce maintenance costs, it is most likely worth the money.
- Hiring talent at a greater salary to better manage staff and/or operations. Paying the price to hire one talented, passionate and hard-working employee is always better than hiring two mediocre employees at a lower wage.
- Requiring key employees to sign non-compete agreements. No business owner wants to work to build a team of professionals just to have them walk away and form their own business or be gobbled up by a competitor. Requiring a non-compete agreement is a good “insurance policy” on retaining good employees who both generate revenues and have valuable relationships with key customers. Most important, buyers will pay more for your business if they have assurance your staff won’t commit mutiny immediately after the purchase.
- Securing long-term contracts that are transferrable to a buyer (new owner). Having transferrable signed contracts in place with key customers, increases the value of a company. Contracts that can be transferred to a buyer (new owner) translate to cash flows. The value of such contracts drastically increases when the contract is good for multiple years.
- Managing debt levels. Sometimes it is necessary to spend more to make more. However, ensuring that your company does not get over-extended is vital to continued success. Should your company experience a one-year downturn for unforeseen reasons, making bank payments and fulfilling operational responsibilities may be nearly impossible if your debt levels are too high.
- Managing risk. Being mindful of potential lawsuits and operational risks is necessary to attempt to ward off major risks. Unfortunately, preparing for the worst is an important part of managing a company.
- Quality. Producing consistent high quality products and services is paramount to building the goodwill of your business. Especially with today’s social media, news of small slip-ups in quality can be spread like wildfire.
Do you or your clients have Business valuation questions or concerns? Contact me today.