Every business is created not merely to exist but to reach some goals that are established by its owners. Those goals can include survival for a newly established business or during a time of crisis, growing sales, growing market share, and growing profits. All these take planning, skill, and effort but as American economist, Benjamin Graham stated, “The worth of a business is measured not by what has been put into it, but by what can be taken out of it.” That value is called equity. The key question is how to build equity in a small business.
The Importance of Building Equity
Equity is simply the value of each owner’s interest in a company or his/her portion of the company’s assets. Their interest can take the form of property, cash, or stock. Equity can also be defined as the portion of a business that would remain for the owners if the company were to become liquidated or its debts paid off. The higher the business’s equity the more valuable the business.
It is important to know how to build equity because building equity offers many benefits. First, equity is cheaper than taking on more debt, and it doesn’t need to be repaid. Second, equity can be used as collateral when you need to borrow capital to finance growth. Third, equity makes it easier to get the funding that you need. Fourth, equity can help your business attract more talent. Fifth, equity can provide a safety net because your owners and shareholders are invested in your success and will want to help in times of difficulty.
How to Build Equity in a Small Business—12 Tips
Use these 12 tips for how to build equity in a small business:
- Build a complete brand with a clear identity and tangible benefits that offer some unique selling aspects to differentiate your brand in the marketplace.
- Find a good location for your enterprise and invest well in the property. Be in a place that offers visibility, one that is close to and accessible to your customers.
- Focus your enterprise on growing markets, markets that have a long-term horizon, and then work hard to grow your market share.
- Find solid talent and work hard to keep them by investing in their skills and growth. A strong talent pool will ensure that your customers get the best possible service and will result in customer loyalty and transaction growth.
- Work hard to build and maintain an excellent reputation.
- Know that managing costs to achieve expense efficiency is a companion to maximizing sales efficiency.
- Don’t continue doing the same things the same way. Find ways to improve productivity. That includes ways to invest in and embrace new technologies.
- Invest in research and development. That will open new opportunities and new developments that serve as motivation for employees and other stakeholders.
- Develop your marketing methods and especially utilize new marketing technologies. Make marketing a key operating asset for your business.
- Strategically manage your capital. Make sure your accounting practices are top-notch and rigorously utilize your financial statements.
- Find ways to reinvest in your business to propel your growth.
- Develop strategic partnerships. Get professional help that knows how to build equity.
Get Expert Accounting and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO. We provide professional accounting and financial assistance that businesses rely on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.
