Do You Care about Making Your Business More Valuable?

It is not what you say, but what you do. Many founders of businesses who are now owner-managers of the business they founded, will tell you they want to make their businesses more valuable. But is that reflected in the actions they take? There are established actions business owners can take to make a business more valuable. What do these actions tell you about whether you really care about making your business more valuable.

To make a business more valuable act to have more than one owner. This does not mean giving up control of the business, but it does involve having at least one other owner with whom to establish planning, owner agreements, and business continuity. The action that will stabilize the value of your business is entering into an owner agreement with buy-sell and business continuation provisions. With such an agreement in place, there will be an established process to identify the value of the business between the owners, a way to provide value to an owner who withdraws because of death or disability, and a basis for addressing other succession issues. If there is no other owner, how do you establish an owner agreement with buy-sell provisions? While having a minority owner can brings it own special set of problems, finding the solution to those problems and creating an owner agreement (which can solve any control issue) makes a business stronger and more valuable.

To make a business more valuable act to identify a probable sale to a third party (a party not currently involved in the business). While the potential of an inside sale (a sale to a party already involved in the business such as through a buy-sell agreement) can provide stability and business continuity, a sale to a third party will bring a higher price because a third party will value the good will of the business (the knowledge about the business that an insider would already possess). Remember, simply using a potential third-party sale as a planning technique does not mean you have to sell the business. But viewing the business through the eyes of a potential third-party buyer is an excellent way to evaluate and plan for the business.

To make a business more valuable act to not be the most productive part of the business. Simply put, this means you should cease to be an owner-manager and become an owner and not perform management duties. This will require mastery of the difficult art of delegation. The third party buying your business will value the business higher if you are not the most productive part of the business. The less that is true, the higher the value of the business to that third party. Again, put yourself in the perspective of a third-party buyer. You would not want to pay someone to leave a business that would not run as well without that person. You also do not want to pay a high amount for someone to stay on and run a business that the person no longer owns.

To make a business more valuable act with the involvement of a group consisting of the owners and stakeholders of the business to state strategic goals, including sale of the business to a third party, implement actions to reach those goals, monitor the effect of those actions by measuring the results, make new decisions based upon the experience of those actions, and amend the plan narrative to reflect the decision-making. The format of the plan narrative should be such that the decisions made, the actions taken, and the results of those actions are communicated to the planning group as they occur for a dynamic planning process.

To make a business more valuable act to be accountable for plan failures and give others credit for plan successes. Build a non-owner team that will confidentially manage the business.

So do you really care about making your business more valuable? The change from owner-manager to owner creates wealth for the owner and the owner’s family. It is not easy, but neither is founding and maintaining a successful business. Generally, owners who have created a successful business and are quite capable of executing this change to create increased value in the business interest. To realize maximum value from your business interest, accomplish the change from being an owner-manager to being an owner.