Increase Net Worth, easily.
As you might expect, after serving 40 years in various areas of the financial services community, I have examined and experienced several financial theories, both proven and unproven. When asked by new business owner clients how they can increase their net worth, I like to share a few financial hypotheses to illustrate the best course of action.
There is: 'Take a dollar and save it.' Your only lift here is your net worth goes up by a dollar plus any return that might be generated.
Alternatively: 'Pay off debt with a dollar. ' The only benefit here is to reduce liabilities by the dollar plus any costs that are saved.
The best choice: Business owners would be much better to consider investing their dollar in various areas of their business. The gain is usually a multiple of the dollar; 2x or 3x. If done correctly, the gains can be accretive.
What business owners don't know.
Most business owners have to monetize their business in order to have adequate retirement funds. With this in mind, my observation of the financial planning and advisor community is that the business owner is underserved. Here' why:
Advisors usually don’t show business owners that their personal assets and the business are 2 different and distinct pools of capital.
Most business owners don’t know the real value of their business let alone how to accelerate those values. Often we see clients whose accountants, lawyers and financial advisors neglect to discuss or understand the value of the business, let alone how the business benchmarks against similar companies or competitors. The old saw rings true here “If you can measure it, you can manage it.”
Achieve 2x or 3x ROI
Five steps towards accelerating value through selectively investing in your company:
Get a valuation for your business. Even if you are not planning on selling for years, this information will tell you what your business is worth now and how that compares to other similar businesses.
Benchmark your business. Do what you can to track your business against competitors, similar businesses in other jurisdictions, month over month and year over year comparisons.
Take advantage of no-brainer improvements; low-hanging fruit that adds value:
- Increase sales while diversifying your customer base. Sell more to existing customers, add new customers, revisit old customers. Get contracts in place. Set targets, track results.
- Pay attention to the bottom line, cut costs.
- Monitor productivity, happiness & loyalty of your staff.
- Improve: what can your company do better, faster and /or easier to serve customers needs? Investing time and resources here can be wise.
- Data: document your processes, update your databases, keep reporting current.
- Build your brand. Get help to develop a competitive position that will add value to your company. Create and stick to a marketing plan, track efforts and results.
4. Determine & track your company’s financial health using cash flow analysis, income statements and your balance sheet. Is your cash flow increasing or decreasing?
5. Develop a strategic plan for your business that allows the company to grow without you being hands-on at all times.
A business owner’s net worth is made up of 2 things: their personal wealth and the value of the business. Not spending the time to build value in the business well before selling means that sale proceeds won’t be maximized or even worse, the business is unsellable. The result, the owner doesn’t end up with any gain in net worth upon departing the business. In my work with business owners, value building is the key to a successful and strategic succession.
A business strategy to enhance your exit
As a certified advisor of Exit Planning Institute, I am committed to helping business owners build and preserve wealth through Value Acceleration Methodology. More than an exit strategy, it is a business strategy that enhances the value of the business. Three key pillars result in successful exits on the owner’s terms: 1) maximize business value, 2) personal financial planning and 3) life after business planning.
Exit Planning Institute CEO, Chris Snider, wrote a seminal book “Walking to Destiny – 11 Actions an Owner must take to Rapidly Grow Value and Unlock Wealth”. His theory of Value Acceleration Methodology is the core process we recommend owners follow to making the business attractive and ready for a transaction.
Let's connect. I'd love to hear about your business and share a few ways you can add value to your business.