Every small business owner has many things to plan and many functions to manage. It can all be overwhelming. But one critical thing that guides many of the priorities is focusing on ways to increase the value of the business.
What is Business Value?
The value of a business is defined as the total value of its tangible and intangible elements. The tangibles include real estate, buildings, equipment, inventory, monetary assets, and stockholder equity. The intangibles include the strength of the brand, trademarks, goodwill, and public benefits.
For example, if a business decides to merge, acquire, or sell, an appraiser will perform a valuation and determine the economic value of the business by calculating its financial strength including revenues, profits, and cash flow. The appraiser will assess future financial prospects, calculate the value of owned assets, and evaluate the market value of the business.
Why it is Important to Increase the Value of a Business
It is important to increase the value of a business because an increased value will help the business to attract more customers. It will be enabled to charge a higher price for its products and services. The increased value will help the business add unique features to its services to stand out from its competitors. The increased value will contribute to growing market share and it will lead to long-term cost-efficiency.
How to Increase the Value of Your Small Business
Consider these actions:
Understand the current value of your business. Examine your financial statements, focusing on sales performance, margins, and profits, and carefully evaluate your future financial projections. This will provide a great baseline to plan your strategies for value improvements.
Examine your systems and procedures. What can be done to enhance the effectiveness of your operations? How can you improve the effectiveness and efficiency of your processes and systems to achieve steady profit and value increases?
Attract and satisfy a diverse customer base. Make sure that you don’t rely on a small range of customers that comprise most of your income.
Focus on excellent customer service. It goes without saying that happy customers are more likely to stay with you. Retaining long-term customers adds steadiness and value to a business, much more than will transient customers who may only come for a “deal.”
Strive to achieve consistent revenue growth. Achieving steady revenue and profit patterns can increase the value of a business in the eyes of all stakeholders including employees, vendors, and lenders. Widely fluctuating sales and profits make it difficult for anyone to know where the business will stand, thus dropping its perceived value.
Aim to improve your margins and cash flow. Improving both will help strengthen a company in the short and long term.
Have formal agreements with key employees, suppliers, and customers. This protects the company by establishing contractually solid and stable relationships.
Build your management team. Everyone looks to the management team to provide ethical leadership, commitment, and stability to an organization. These all add value.
Use your financial statements. A high level of attention to and regular use of financial statements is central to the health and progress of every company. A CPA will provide expert help in this and other key accounting areas.
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.
