Approximately 80% of a business owner’s net worth is their business, it is estimated by business intermediaries. Therefore it behooves business owners to take every step possible to increase the value of their business.
As a financial advisor to small businesses for many years, I’ve identified several ways an owner can maximize the value of his or her small business.
1. Financial Statements: Produce and maintain clean financial statements and update them monthly. Not only will this increase the value of a business, it will increase its value to lenders, stockholders, and potential buyers.
2. Bank Loans: Eliminate pre-payment penalties from all loans.
3. Receivables: Collect or write-off aged accounts receivables.
4. Payables: Bring all accounts payable up-to-date and keep them current. If necessary negotiate more favorable payment terms.
5. Financial Ratios: Compare your company’s financial ratios to industry standards and make adjustments. Your accountant or business consultant can help you with this.
6. Profits: Maximize profits at every opportunity. Review no less than monthly.
7. Pricing: Compare your pricing with your competition. Watch your ratios and know when your costs are rising, so you can maintain your margins.
8. Products: Discontinue unproductive or unprofitable product lines and/or services.
9. Competition: Think about and write down what makes you better than your competitors.
10. Records: Make sure all corporate (LLC) documents are current: filings, operating agreements, corporate documents, etc.
11. Trade Assets: Document all patents, registered trademarks, trade names, etc.
12. Company Story: Write a detailed company story that includes your history and your plans and projections for the future.
13. Operations Manual: Write an operations manual and keep it updated and complete.
14. Employee Handbook: Not only should you have a comprehensive handbook for employees. It should be signed by all employees. Their signed acknowledgement of receipt should be maintained in their personnel file.
15. Employee Files: Set up complete employee files and keep them correct and updated.
16. Employee Agreements: All necessary key employees should have an employment agreement, which includes a non-compete agreement.
17. Benefits: Document employee benefit plans and keep them current.
18. Owner Perks: Owners enjoy certain benefits which have cash value: vehicles, insurance, travel, services, etc. Document all of these benefits because they are to the free cash flow from the business in addition to taxable income. These benefits are not always visible to lenders and potential buyers
19. Inventory: A. Conduct a complete inventory of all equipment, furniture, and equipment. B. Conduct a complete inventory of goods for sale and make correcting entries for old or stale inventory.
20. Equipment: List all equipment including name, make, serial number, date of purchase, and acquisition cost. Update this list every time equipment is purchased, sold, or retired.
21. Agreements: Put all distribution agreements and exclusive rights agreements in writing and make sure they’re signed and kept current.
22. Facilities: Keep offices, warehouse, operations, and other facilities clean, neat, and attractive. Watch competitors’ locations and keep your place looking as good or better than theirs.
23. Proprietary Assets: Document any proprietary services and assets: services, software, systems, patents, and any other intellectual properties.
24. Leases: Document all leases.
25. Maintenance: Equipment maintenance should be recorded, updated, and accurate for all maintenance.
If you systematically and methodically do all these things, not only will you increase the value of your business, you will stand head and shoulders above almost all of your competitors.