If you're like most small business owners, you started your business because you wanted more personal freedom and you possessed valuable knowledge and skills in a specific industry or profession. You didn't however start with a clear picture of the business you were going to create. Instead, you went out and did what you were good at and the business was built around you. As your business has grown, your responsibilities and job functions have grown as well. You are no longer only a programmer, electrician, or chef you are now also a financial manager, recruiter, motivator and customer service representative.
At this point you must respond to the changing dynamics of the business with effective strategies that set you on the right path. You've achieved your first goal: you are no longer working for somebody else. You are your own boss. Now you should focus on growing the value of the business.
Value is primarily dependent on the long-term profitability of the company; to achieve this you need a set of strategies that focus on sustainability and value-added business systems.
Two sides of the coin
It's important to recognize that you have two different roles to fulfill in the business: you are the owner and you are also the chief executive officer (CEO). From the financial perspective, the owner's role is much like an investor; you want to receive a positive return on the money, time and effort you've invested in the business. As the CEO, you have a fiduciary responsibility to the shareholders to profitably grow the business.
While both roles are interested in the overall success of the business there is a possibility for conflict. If the owner/investor gets impatient, they will want to extract more money from the business as a return on their investment. As the money goes out to pay investors, it leaves less money to grow and expand the business.
It's very important to recognize the two roles and make choices that take both perspectives into account, but most importantly, you must recognize that both roles ultimately have the same objective: to maximize the company's value.
Set the course for maximum business value
Maximizing the value of the company is your main goal because it serves everyone's needs... from employees, partners, customers (indirectly) and investors. To achieve this result you must develop and execute strategies based on the following objectives:
Optimize the owner's investment: You've made a tangible investment in your business, how do you achieve the highest return on your money? Think about this issue as if you had no connection to the business.
Optimize revenues: How can you create new revenue opportunities or improve the profitability of your current revenue streams? While more sales is an obvious response, it does not fully address the result you are trying to achieve. Think about improving the balance between revenue and profits. How can you earn more profit from each dollar of revenue?
Optimize borrowing: Debt financing can be an excellent option for raising needed capitol for a business. As opposed to selling equity (ownership) in your business, borrowing money does not dilute your ownership stake. Additionally if you already have debt in the form of small loans and credit cards balances, there may be a significant cost savings advantage to refinancing and consolidating the debt.
Maximize value added from business systems: Creating systems to effectively manage and grow your business has more value than just operational efficiency and consistency. These systems are an important aspect of the value an investor, buyer, or lender attributes to your business. Business systems also improve the customer experience providing a competitive advantage. By investing in the development, training, and implementation of new systems and processes you can positively impact the overall value of the company.
Minimize expenses: A simple idea, but often overlooked from the strategic perspective. Every dollar of expense reduction flows directly to your bottom line. Finding cost saving methods of producing, distributing, advertising, and servicing your customer's needs greatly impacts a company's ability to grow profits.
Minimize taxes: Great accountants do far more than prepare tax returns; they help you understand the tax impact of your business decisions and assist you in reducing your overall exposure to taxes. It's important to set this expectation with your accountant and consult them before making decisions so that they can provide guidance. While the decisions are always yours to make, looking at them from all angles greatly improve your ability to choose wisely.
Minimize vulnerability to "wild cards": Small businesses face an extraordinary amount of risk from unforeseen events. Making contingency plans, disaster plans, and having the right amount of insurance and emergency funds can significantly minimize the possibility that such an event would wipe out the business.
As the business owner and CEO it is your job to maximize the value of the business. Thinking beyond the old adage of "I need more sales, or I need better employees," and focusing on the many factors that determine a company's value will help you build a strong and resilient business. Using the topics above as guidelines for thinking about increasing the value of your business, you can create effective strategies for long term growth and prosperity.
Share your story
How have you maximized the value of your business? What strategies and tips can you share with the EMyth small business community?