In this Value Growth Series, I’ve developed mini-series for each of the 8 Foundational Components that drive up your business’s value. Thus far, I’ve discussed planning, leadership, sales, marketing, personnel, and operations. Starting with this article, I’ll be talking about finance. Whether you are a solopreneur or an owner of a business with hundreds of employees, I want you to think about finance as a department, or a distinct area of your business. And whether you’ve reached success in spite of your own financial ignorance or you are a financial guru, all business owners can improve in this area of finance.
When I was taking classes to earn my Certified Value Growth Advisor (CVGA®) license, I came across the following statement:
“Without a comprehensive finance department and strategy, a company is at serious risk of not being able to finance future growth on sustainable terms thereby diluting [its] value.”
If you are trying to drive up the value of your company, you must reduce risk. No one is going to pay you for uncertainty. If you cannot produce a financial trajectory that shows historical growth and one that shows projected future growth, no one will be interested in buying or investing in your business.
So as I talk about increasing the value of your business, I want you to look at the way you handle your company’s finances. Let’s find out how you’re doing currently and what your company is capable of doing.
By answering the questions above, you can determine how many improvements you need to make to your business’s finance department. Exactly what are you missing? What are you failing to do? If you can pinpoint what you are doing wrong, you can develop strategies to fix the problems because, ultimately, you want to strengthen your finance department.
But why? Why does the health and wellness of your business’s finance department matter? Well, as my CVGA® handbook says, “[A business’s] value is influenced by risk and the predictability of future cash flows.” If you can show investors or buyers a history of steady cash flow and a projected trajectory of steady cash flow, your business becomes more enticing to them. It becomes valuable.
So exactly how can a finance department add value to your business? Well, it can:
Essentially, your finance department helps you track and predict revenue and profits, and it mitigates your company’s risks. The less risk your company faces the more valuable it is to investors and buyers. To learn more about how risk affects your company, read Cost of Capital – How It’s Calculated and Its Effect on Business Risk. And be sure to listen to the attached podcast for my take on this topic!