We recently wrapped up the first segment of calculations that we need to assuage the fears that many of us, as business owners, have. But the wealth gap is only one of several key calculations that we need to understand. In today’s entry, I’m going to introduce the value gap. But in order to understand the value gap, we must first, understand the five stages of value maturity. So, join me as we begin to dig into the next segment of our journey to overcome the things that keep business owners up at night.
Follow Along With The Financially Simple Bizcast!
When I think of the value gap, I can’t help but think of the five stages of value maturity. Each stage is like the rung of a ladder. You must deliberately ascend from one rung to the next, or you’ll never reach the top of the ladder. In his book Walking to Destiny, my dear friend, Chris Snider, discusses this concept, outlining the actions that business owners must take to rapidly grow value. Full disclosure, much of the information that I’m sharing with you today, comes directly from Chris.
If we want our business to become the goose that lays the golden egg, then we have to nourish the goose. We have to climb the ladder and we can’t skip any steps along the way. Shortcuts will leave us shortchanged. So, what is the first step?
If you don’t already know the current value of your business, then have an appraisal done as soon as possible. You can’t know if you’ve made any progress if you don’t know where your starting point is. I recently began training for a deep-country hiking trip in Colorado. Knowing that the air is thinner at the higher elevations that we will be in, I knew that I needed to begin shaping up weeks before I would be leaving.
When I started off, I hopped on the scale and was mortified at the number that I saw. However, I cut back on my pepperoni pizza intake and began a new exercise routine. Now, I am much happier with the number I see when I stand on the scale. But I wouldn’t know that I had made any gains, if not for that first painful weigh-in. The same is true with our business, folks. If we don’t identify the value of our business, we have no way of measuring our gains.
If you can’t protect the value that you’ve built, then there’s no sense in working to increase your business’ value. Any further value gained will just be lost along with the rest. So, protecting your business and its value is so important, folks. But what are we protecting it from? In Chris’ book, he actually talks about this. He calls it “the five ‘D’s” and it’s one of the things that we teach at the Exit Planning Institute. So what are the five “D’s”?
Each one of these poses a major threat to your business’ value. But there are ways to protect your business. These protections come through various legal channels and insurance policies. My friends, it’s not fun to think about but it’s one of the most important things we can do.
This one could go by a few different names. I call it value growth. Chris calls it the value acceleration methodology. Whatever you call it, it’s dealing with the same thing, increasing the overall value of your business. How do you do this? Well, that’s a lengthy process that involves many different things. But for the purpose of today’s article, we’re going to look at your tangible assets and your intangible assets.
Your tangible assets are the ones that you can see and feel. It’s the money in your bank account and the supplies on your shelves. However, intangible assets are things like goodwill. Intangible assets can really boost the value of your business without adding to its expenses.
Building the value of your business is a very rewarding thing. However, if you spend too much time in the building stage, you’re going to wear yourself out. You see, building a company’s value is hard work. That’s why, at some point, you need to take a break from it and reap the harvest of your endeavors. But how do you do that?
Well, harvesting can be done in many different ways. As business owners, we have a tendency to invest 100% of our returns back into our businesses. But maybe now is the time to take some of the value that you’ve gained and put it into a 401k or a cash-balance account. Perhaps you want to set up a bonus structure as a reward for your employees. Whatever it may be, harvesting the value of your business doesn’t always mean selling it. Take some time with your advisors and determine the best use of your harvested value for you.
At this point, you’ve reached the pinnacle of the ladder. This is the fifth and final stage of value maturity. Now’s the time to manage your business. If you’re saying, “Justin, I manage my business now,” that’s probably not true. It’s more likely that your business is running you. What I mean is that until you’ve removed yourself from the epicenter of your business, and it is able to function without you pulling all of the strings, you aren’t really managing your business.
Likewise, until you’ve done all of these things, your business isn’t really as valuable as you might think. You see, it’s possible to sell your business without ever even reaching the first stage of these five stages. And frankly, many business owners try to do just that. But if you don’t make the conscious effort to go through each of these five stages, then your business will never realize its full potential. You may sell it, but you’ll most certainly be leaving some of its value on the table.
Folks, as we continue with this series, we will uncover the value gap and what it means to your business. But I wanted to start off with the five stages of value maturity so you would understand the basics as we move forward. Owning a business is hard work and increasing its value is even harder. But with the right efforts at the right times, it can be done.
Life is hard. Life is good. Growing the value of your business can be frustrating. But with the right attitude and some basic knowledge, value maturity can at least be financially simple.
Have questions about identifying your business’ current value or any of the five stages of value maturity? Contact us, today! The Financially Simple team has helped hundreds of business owners just like you.