Many entrepreneurs focus on revenue, innovation and people to drive their enterprise forward – but business tends to move forward. Finding, recruiting and hiring talent, maintaining relationships with key customers and suppliers, dealing with day-to-day business growth and management issues over time can create bottlenecks that slow growth and reduce the value of your business.
As you run your business, you need to focus on things like product differentiation, market share, margin, customer focus and satisfaction, human resources, legal, innovation, and the list goes on. For clarification purposes, let’s focus on three things:
- Financial
- Works
- Sales and marketing
If you had to rate yourself on a scale of 1-10, how would you score in getting the most out of these three key areas?
Reviewing best practices in these three critical areas can increase the value of your organization.
Get your finances in order
Perhaps one of the most important aspects of running a strong business is getting your finances in order. Cash flow is the vital lifeline that keeps the heart of businesses ticking, and many times businesses fail because that heart stops beating. One thing that will instantly increase the corporate valuation of your business is having clear and transparent financial statements.
Financial statements allow the owner to measure growth and adjust accordingly, as well as provide a historical record of the company that can be purchased. The most basic statements are income statements, balance sheets, and cash flow statements. Consider having your company audited and rate yourself on how clear the quantitative assurance of the company’s financial health is.
Once you’ve created your financial statements, you can start tracking trends:
- Changes in assets and liabilities
- Increase/decrease the company’s equity
- Liquidity / working capital
- Inflows and outflows of new assets to generate income
- Profitability
- Where the company’s cash comes from and how to pay for operations or invest in the future
- Income, expenses and depreciation
- If cash flow is received or used to invest, finance and pay off debts
Having clear and concise financial statements has many benefits. Key benefits for you and your business include a documented paper trail of activities, a snapshot of your financial health and insights into performance, operations and cash flow.
Adjust your practices.
What is going on behind the closed doors of your business? Regardless of your industry, improving operations by thinking strategically about processes and systems in line with your vision, leadership and practices will increase the enterprise value of your business. Consider scoring your business on the following operational metrics:
Do you have a vision statement for your business? you should. A vision statement is a statement by your internal team, customers, partners, and investors that shows what your business can achieve if there are no obstacles for a specific time frame (ie, one, three, five, 10, 25+ years). Visual statements help provide the business with a sense of direction.
What would you think if your best customers were “flies on the wall” in one day of your business? What does your business mean? What core values are most important to building a culture in your organization? How is your team getting along? Do you feel you have the right players in your organization?
Enhancing your business through strategic processes and procedures not only saves your business time and effort, but is also the ultimate contributor to enterprise value. My favorite example is McDonald’s. The process of assembling a cheeseburger starts with touching the bun, placing the sandwich paper on the table, arranging the toasted buns, applying ketchup/mustard/onion/pickles/cheese, placing the cooked patty, closing and wrapping the buns. This entire process is monitored for efficiency at an average of 208.2 seconds per drive window. The point is simple: anything done more than once should have a clearly defined process.
What goes on behind the closed doors of your business is important, as operational metrics help inform your financial reporting, which increases the enterprise value of your business. Operational reports are a sign that your company understands and values the key drivers of your organization’s performance.
Prepare a clear sales and marketing plan
Perhaps the most exciting part of being an entrepreneur is the feeling in your heart and stomach as your business grows its top line revenue. In contrast to individual-based growth in business today, when you can demonstrate proven and systematic methods for revenue growth, your business will attract high-value multiples. Common performance metrics that differentiate you from your competition include:
- Sales and marketing plan
- Sales process
- Key parameters
Your sales and marketing plan should outline strategies specifically around awareness of your product or service among a defined group of “immediate” buyers. How does your message emphasize to your buyer that your business has a solution to a problem (or may not even realize they do) and that your products or services will make their lives easier and more satisfying? There are endless resources online to help you create your plans and processes that are relevant to your industry and business. To refresh your mind, consider:
- What makes you and your business unique?
- What problems are your future buyers solving?
- What questions are your prospective buyers asking?
- Is your marketing message consistent with your marketing materials?
Do you regularly measure your progress and what are your key sales and marketing metrics being measured? The goal of your sales and marketing metrics is to help you determine if your results are in line with your goals and which areas need fine-tuning. Regardless of your industry, four common metrics to track will be:
- Annual income
- Average profit margin
- Conversion rate
- return on investment
Understanding sales and marketing will open your eyes to many interesting aspects of your business. Whenever we gain a better understanding of our buyer or receive feedback, we can use this knowledge to better design and build systems and strategies to increase the value of our businesses.
In conclusion, implementing any or all of the ideas discussed today should lead to significant business valuations. Financial, operational, and sales and marketing systems are fundamental to any business and require constant review.
Who knows, when you review your business, you might find a new reason to reinvent yourself and the business? Congratulations on your success!
Partner, CG Capital
Dennis D. Coughlin, CFP, AIF, co-founded CG Capital in 1999 with Christopher C. Giambrone. It has been in operation since 1996 and works with retired individuals and retirees. Proud of his humble upbringing, Dennis shares his advice with the core principles he grew up with. When not in the office, you can find him enjoying the outdoors with his family.
