Business Valuation Blog | Understanding Buying / Selling a Company

For new business owners, it can take years to finally reach a point where a certain level of success is reached, and all the hard work and long hours finally pay off. Success is measured in different ways and can be fleeting or inconsistent. There are many reasons why success is eventually achieved, the most obvious being dedication, relationship building, and developing a competitive edge that sets your company apart from the rest.

In today’s business climate, there are both new and old concepts to consider when developing a longer-term game plan. The key to longevity is understanding and taking advantage of these areas and building a business model that creates optimal efficiency and effectiveness year after year.

Here are a few to think about:

Website Development and Search Engine Optimization (SEO)

Small businesses no longer need to rely heavily on word of mouth and referrals to grow their business and attract leads. In today’s climate, there are a lot of potential customers who will simply search the web when they need products or services. Even local businesses that have a small regional customer base will benefit from having a great website and SEO model that drives their company toward the top of “Google” searches. It’s the simplest and fastest way for customers to find what they’re looking for so take advantage of it. Consider upgrading your website and its searchability to increase your volume of leads.

Key Employee Retention

You can give yourself as much credit as you deserve in succeeding with your small business, just don’t forget the others who have helped get you there. When you are fortunate enough to have key employees who work as hard as you do and fit into the model that you are building, don’t let them go. Great workers don’t grow on trees and can be just as critical to the company’s growth as you are. Do what it takes to retain them and acknowledge their importance to the business.

Maximize Your Cash Flow

If COVID taught us anything, it’s developing a business that can sustain itself when revenues are down over a steady period. While that experience might be an anomaly, you should consider structuring the financial side of your business so it can remain healthy during slower revenue periods without constraints on making payroll and fixed expenses. Think about stashing some funds away, restructuring your debt, or leveraging some equity you might have in real estate or equipment. Don’t overinvest in long-term projects that might have additional risks associated with them. In other words, manage your money for the long term and you will have a greater chance at continuing success.

Being a small business owner is both exciting and stressful and has significant benefits and responsibilities beyond a typical employment position. Taking on all of the ownership responsibilities yourself or considering a partnership is a critical decision you may need to make at the beginning of the venture and afterward, once the company has been operating for a number of years.

Circumstances may decide this for you, or you may have more control over the process. Either way, here are a few things to consider when thinking about what is best for you.

Can You Manage Everything on Your Own?

This is probably the first thought that goes through your mind when starting a new business or potentially buying out existing partners. Do you have the experience, drive, and time to accomplish the day-to-day operations involved with 100% ownership? The answer will rely in part on the structure of the operation and how much you can delegate to employees, as well as your general desire to answer to no one but yourself.

Do You Have the Capital to Invest and Maintain Adequate Cash Flow by Yourself?

This is especially critical in the early stages of operation when you are trying to establish the business and before you have developed the levels of revenue to sustain and grow. Most business owners should expect a drain on their personal funds during this period unless they bring in working partners or silent investors to alleviate the burden.

Are You Having Trouble with Certain Partners?

This issue might be the most challenging one you face as a business owner during all phases of development and growth in the company. Bringing in the right partners and investors who match your goals, complement your skill set, and seamlessly get along with you both personally and professionally might seem like an impossible task. Developing and maintaining a high level of trust and compatibility with other people in business and life is something we all strive for but is rare to find over the long haul.

If you do, work hard to hold onto those relationships and continue to be successful. If philosophies change and you find yourself constantly butting heads with existing partners, you may have to decide if a change makes sense for the better of the business and yourself. Being your own boss is generally thought of as a great situation, especially later in your career, when you have all the tools to be successful. Many small business owners have found the right formula to work well with their partners and share the burdens and successes of ownership.

We all know about new year’s resolutions from a personal perspective, along with the challenges these can bring in accomplishing them both in the short and long term. One of the hardest things for many of us, in both our day-to-day lives, and as business professionals, is examining the things we don’t do very well, and changing our habits permanently, to create a more successful outcome.

As a small business owner, you may feel even more invested in making these course corrections for your company each year as you assess past achievements and look to improve areas where results were less than optimal. This behavior is part of the core foundation of a long-term growth strategy that keeps your business operating as efficiently and effectively as possible. As the larger industry and marketplace, you work in changes over time, you need to keep up and adjust for these external issues. Also, review your internal structure and processes and determine whether there is room for improvement in any areas that drive revenue and control overhead and variable expenses.

Consider who on your team has outperformed expectations and how they might help take your business to the next level by promoting them or expanding their responsibilities. Keep an eye on employees who may be going in the opposite direction and determine if you can bring them back into the right mindset or potentially need to find alternatives for their role in the company.

Even if you had a very successful year in 2022, it is prudent to refresh your outlook on how the operation functions, while continuing to improve and create further growth opportunities. The concept of “if it ain’t broke, don’t fix it” doesn’t apply in situations where change occurs, both within and outside of your control, in the business marketplace, and right at your doorstep.

Seek to obtain advice from key advisors and employees who you trust and work with on a year-to-year basis. Objective opinions outside of your own experience are always useful to potentially view things from different perspectives before you fully commit to a course of action.

Give yourself the opportunity to look back at 2023, a year from now, and tell yourself you did everything you could to continue to create the best version of your company. Every objective may or may not be accomplished, however, putting in the effort to carefully consider all the options to remain successful, and continue to grow, will be rewarding.

Each company within every industry has certain key factors that determine and drive the success of the operation. It is therefore important to take a deep dive into yours and understand exactly what those variables are so you can continue to maximize the positive impact these have on revenues, costs of goods sold and operating expenses.

What parts of your business are making the biggest difference to your bottom line?

Consider the following:

• Marketing variables such as website optimization, social media messaging, or a strong sales team.
• Unique product offerings that may create higher margins than your competitors and allow you to provide customers with better pricing.
• Client communications that are consistent and effective.
• Commitment to timely delivery of your products and services.
• A strong market reputation based on decades of experience, expertise, and proven results.

It might be a combination of these variables or something even more distinctive that creates the value added that separates your business from all others in your industry and specific market niche.

Once you, as the business owner or executive, have a good understanding of what these factors are, you can discuss them in detail with service providers and consultants such as your accountants, financial institutions, and investment advisors. You can also share them with outside consultants such as business appraisal professionals and brokers who will work with you closely to develop the documentation necessary to exhibit the level of financial value your company truly supports.

Some key variables may not be readily apparent on balance sheets and financial statements so it is vital to create a way to break down the numbers further and make adjustments that can be supported in a more detailed analysis. By carefully explaining all these factors to those who will, in turn, independently and reasonably verify them, you will afford yourself the best chance to translate them in a more tangible way that will be obvious to those who will take an interest in your business down the road.