Increasing company value should be a core goal for business owners. In part one of our two-part blog series on creating a more valuable business, we explained the importance of identifying and protecting the value of the company. Part two discusses how building, harvesting and managing wealth are key next steps to growing value.
Step 3: Build Value
Once you have protected your value, you can focus on building it.
In the build stage, you will take a longer point of view, prioritizing more strategic actions to increase intangible capital over less strategic actions. Building value results from increases in cash flow and improvements to your multiple, which is the number assigned by the private capital market to the value of your tangible and intangible assets and the risks associated with your business.
Intangible assets are “knowledge capitals” and can be divided into four areas:
- Human – the value of your talent
- Structural – the value of your systems and intellectual property
- Customer – the value of your customer relationships
- Social – the value of your brand and culture.
Step 4: Harvest Value
As some point, cashing in or harvesting the value of business is in your future. Harvesting represents the thought of a growing season, where harvesting marks the end of the growth cycle for your particular crop: your business.
There are many business transition options, from internal exits for intergenerational, key employees and partners, to external transitions for private equity, family offices or strategic buyers. It’s important to explore each possibility.
Step 5: Manage Value
Managing value is the last stage, but not because it comes at the end after you harvest. It’s last because it represents full maturity.
You should obviously be managing value through the entire process, not just at the end. If you have identified, protected, built and harvested value from a personal, financial, and business standpoint, you have managed your value. Managing value begins with identifying it. Remember, to effectively achieve results, it’s not just the value of your business you need to manage. You need to manage your personal value and personal financial net worth as well. If you actively manage value through the entire process, you emerge financially independent of your business, with lots of options when the time comes to transition. It also preserves those options whether or not the transition is on your terms and timeline.
For more information, read part one of the Five Stages of Building Value: Identifying and Protecting Value, or learn more about our Business Transition Planning Services. Contact an Anders advisor to learn how to implement a successful business transition planning strategy for you and your business.
For additional reading, check out Chris Snider’s book, Walking to Destiny – 11 Actions an Owner Must Take to Rapidly Grow Value and Unlock Wealth.All Insights