Here’s the thing, when it comes to entrepreneurs, we’re audacious. We see the mountain and we start climbing. Failure just isn’t an option. We might stumble, but eventually, we will reach the peak or die trying. But when we are near leaving, our determination before we put our business up for sale can backfire on us. Cost-cutting measures to make our business look better on paper can ultimately hurt its sell-ability. How it is possible that streamlining a business could be bad you might ask?
As a business owner, personal financial planning is key to getting to the next stage of life, whether that’s retirement or just a change in direction for your own personal gain. This is where you reach the point where you ask yourself, “Is my business WORTH the amount of money that I need to transition to the next phase?”
Let’s say for example I need $2 million in investable assets which produce income for me to maintain my standard of living. When I examine my modified net worth statement, it shows that I am only at $1.5 million and a majority of this net worth is my businesses value. So, I am about $500k short of my goal. That’s where the business value gap comes into play. So I need to grow my business and increase the value of it by at least another $500k. The biggest problem is that many business owners do not understand how to enhance the value of their company.
So with my target being $2 million, I may be thinking there are a couple of ways streamlining a business I can use to achieve this. I can either grown my sales to close the gap, or I can start cutting costs. Or perhaps I buy another business to help increase the value of the first business. The problem with these scenarios, or any combinations of them, is that the value of your business will not likely increase. You’ll still maintain that same $1.5 million value.
Sure these options will add slightly, however, for the long-term value you need to employ other strategies. While increasing sales will help, it won’t be enough.
Let’s say you took the path of buying another company to boost your bottom line. If the acquisition isn’t properly integrated, then the buyer is wondering “what in the world were you thinking?”
If you chose these strategies, it will consume your capital and possibly damage your reputation. Especially if you are about to have a merger and you also have a potential buyer at the same time. You just don’t make a massive change like those mentioned above before a sale. It could strain the organization. Your team and the people around you are starting to wonder what in the world you are doing. So how do you up the value of your business? Well, it requires learning how to increase intangible assets and not tangible assets. This idea will actually increase the value of your business, not just increase your cash-flow.
IN-DEPTH READING: The Four C’s – the Intangible Assets that Drive REAL Business Value