Owner Wealth: The Barometer of Company Health

Have you heard that merger and acquisition activities are booming? Business buyers and investors are flush with cash and on the lookout for great investments or acquisitions. I’ve spent a lot of time with three different mergers and acquisitions experts and they are busier than ever.

What does this mean for the private business owner? It means that there’s more emphasis than ever on what contributes to a company’s value. Whether yours is a small lifestyle company with $1 million revenue or a mid-size tech company enjoying $5-20 million in revenue, you should be thinking about company valuation.

Exiting can take several forms. The most familiar include: selling your company outright, selling it to employees or selling it to an investor while you stay on as the chief executive.

The maxim from M&A folks is this: you should begin planning your exit the day you launch your company. If you didn’t do it then, start today. Why? Because you want to be ready to leverage your blood, sweat and tears (and money) when a highly motivated buyer comes along.

To this end I’ve been working with a few owner executives to Maximize Owner Wealth, one of the six Focus Areas that are part of my Singular FocusSM approach.

Exit planning is not business as usual. It is a daily mindset about valuation: building a business that a buyer will want to buy.

Here’s what we’ve been working on and I recommend you begin to do the same:

  • Understand your profit & loss statements inside and out. Looking at the top and bottom line is not nearly enough. What are the details and nuances that generate revenue and increase or decrease expenses?
  • Calculate your net profit for each profit center. How can you increase revenue and lower costs? Should you shift time and money from one profit center to another? Eliminate one or more?
  • Who is managing your profit centers and the operations that make them work? What options for management improvements are there? If changes need to be made, make them sooner rather than later.
  • Look very, very closely at how you acquire buyers. Do you have a well-defined ideal buyer that you pour your efforts into? Do you understand that it’s better to have a smaller number of ideal buyers than a large number of random people who pay you a few dollars?
  • What do you do to ensure that your buyers are satisfied (at the very least)? How do you know? What are your escalation procedures for unhappy buyers?
  • Look even more closely at how you retain your buyers. Endless turnover of buyers is expensive. Even more importantly—most repeat buyers will spend more money than first time buyers. You get more revenue without increasing retention costs.
  • Work with your accountant and other advisers to most effectively reinvest profits in the company. While it may feel good to avoid taxes (legally) it may make more sense to retain some earnings so you have them for next year’s investment in growth.
  • Work with your estate planning lawyer to ensure you have these 4 documents and they are up-to-date: Power of Attorney; Medical directive; Will; Revocable Trust (funded).

Build your company’s value with excellent management, substantial cash flow and profit, and a great list of long-time buyers.

As M&A experts report, there’s nothing like a confident owner of a very well-run company to excite a buyer. Are you going to be that kind of owner?

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