10 Basic Rules to Create Value in Your Business.
There are some persistent norms that every business owner should do in order to create value in your business.
1 - Run your company as if you will never sell.
You need to invest in long term value. You should put procedures and infrastructure in place to insure your company can grow in the future. It is critical that you have the right people in the right positions, proper procedures to insure that you are operating efficiently and as profitable as you can. It is also critical that you have solid internal controls in place to make sure your assets are protected and your financial statements are correct.
2 - Always be ready to sell
You never know when opportunity will come knocking at your door. You need to have your financial and legal house in order. Have your financial statements audited. Make sure your companies cap table is clean and your stock option pool up to date. Have your intellectual property recording up to date.
3 - Leaders get premium value
Your market position matters. Market leaders always command a premium value when it comes to investments or sales. First movers usually will get a premium, but large markets where small companies can make inroads quickly can also command a premium
4 - Markets matter more than tactics
You may have the best strategic plan, the best management and the best new mouse trap, but if there is not a growing market for your product or service the best plans don't mean much. Internal factors, external factors, shareholders and the market all need to be in alignment in order to build maximum value.
5 - Good advisors pay for themselves in multiple ways
The road between decisions you need to make and an ultimate closing is pretty bumpy. It is critical that you have people from the outside looking in at your business, your market and your strategy. You can get assistance from investment bankers, attorneys, accountants, bankers etc. It helps to have people watching you for your well being from a wealth management, tax, legal standpoint who have been down the road a time or two to help you understand and avoid the pitfalls of running a growth company and building real value to the shareholders. They can save your life in many areas.
6 - Know your financial story
You need to know your financial statements and projections as well as your CFO does. It is critical that you have a dashboard that tells you how you make money, by product or service, what the trends are and what your margins are. You need to know how you are going to grow your sales, how sustainable the growth is and what amount is recurring. You need to know how leveraged your business is and can be. It is also critical to know how much free cash flow your company is generating, because ultimately, CASH FLOW is your ultimate driver of value.
7 - Protect your intellectual property
If you have patents, trademarks, trade secrets, market position or a solid brand, you need to protect it like your child. It is what differentiates your business from the competition and it needs to be protected legally with solid IP work from an experienced IP attorney.
8 - Management is and will be important
After cash flow and possibly IP, management is the most important element of the business a company will invest in. Management is what made the company worth buying or investing in. Value is enhanced by the manner in which management presents the opportunity.
9 - You may only get one shot; use a process
You may not ever really know your real value unless you run a well organized sale process. The buyer is trying to avoid a bidding war. The seller is trying to find an outlier who is willing to pay a premium.
10 - Trust your instincts