When you think about the big picture of your business (thinking strategically rather than tactically) are you focusing on growth (most business owners do) when you should be focusing on increasing value instead?

We spend a lot of time talking about Business Growth – and for good reason. Growth is the most obvious, visible sign that your business is doing well. Given a choice, almost everyone would choose to grow versus choosing to get smaller. Business owners and clients bring up the topic of growth a lot – usually in the context of money. I need to make more money so I need to grow (i.e. grow revenue). Unfortunately more revenue doesn’t always mean more money to the business owner.

In fact, some business growth can be bad – here are examples I have seen:

• You bring on a major new client that ends up doubling your revenue but also now represents 65% of your total customer base – best case, that’s a huge risk, worst case you’re now tied to one customer you can’t afford to lose.
• You decide to acquire a smaller business in your industry – they seem like a perfect fit but months after the deal goes through, you uncover past accounting problems and the best half of their employees (and customers) leave. That’s an expensive way to grow…!

Don’t get me wrong – growth is definitely something you should be looking at, but a more strategic goal is to focus on increasing the value of your business.

Business Value is usually associated with selling a business, but even if you’re not thinking about selling anytime soon, it still makes sense to focus on building value. Why? Because the healthiest businesses are also the most valuable.

Focus on Building Business Value

Top line revenue growth doesn’t necessarily lead to value – so the question is ‘What Does?’. Here are four things to focus on:

1. Profitability

The best indicator of overall Business Health is your profitability.  How profitable you should be varies with the size of the business (and the industry) but you should definitely be paying yourself a good salary and also be well in the black. There are several ways to improve your profitability.  Focus on what you could do next year to be more profitable.

2. Create Recurring Revenue and Predictability

When you’re thinking about value (and long term health) of a business, one of the key drivers is the ability to clearly predict what you’re going to do next year. If a good chunk of your revenue is recurring in some fashion, it’s much easier to predict. If you are guessing every year what you’ll make and you tend to fluctuate wildly – your value drops (a lot) and you’re not in a healthy business spot. Focus on what you can do to have more predictable revenue.

3. Be Significantly Different

If you took the logos and names away from your business and your top competitors, could customers really tell the difference between you? If so, what is that difference?  It’s not that you have great people…everyone says that. Is your solution / product different in a meaningful (and positive way)? Have you built from the bottom up to provide a better experience to customers (think Nordstrom)? If you’re not clearly different, your value drops.  Focus on what you can do to significantly stand apart from your competition.

4. Be Clean and Consistent

Do you know what’s going on in your business every day? Are your financials (your books) clean, up to date and transparent? Is the operational foundation of the business stable in the sense that it’s clear to everyone how the work gets done and it’s done consistently, regardless of who’s doing the work?  The quickest thing to kill a sale of your business is when the buyer can’t trust the accounting and financials of your business.  Even if you’re not going to sell today, it’s a habit that you should get into if you’re going to have a healthy business.  Focus on your financials and business processes.

There are other things that contribute to adding value to your business – like having the right people on the team, having a great mix of happy customers who rave about and having a great brand and reputation.  If you can focus on the 4 areas listed above for the next year you’ll add value to your business.

When was the last time you thought about increasing the value of your business? What did you think about? We’d love to hear your thoughts (or sit down to help you brainstorm how to do this if you’re interested). Reach out to us any time at 931-456-4910.