Whether you plan to sell, transition, or grow for the long haul, business value is built over time, not at the finish line. BS&P’s Audit Manager Matthew Mernan, CPA, CVA outlines key actions business owners can take now to enhance value, reduce risk and position their business for whatever comes next.
How much is my business worth? As a business owner, this question might not cross your mind often. After all, who spends time thinking about an exit plan or a future where the business operates without them? For many owners, business value only becomes a priority when it becomes a necessity. This article aims to challenge that mindset.
Maximizing the value of your business should be top of mind and the earlier you take steps to align your business with your long-term goals, the better positioned you will be when it comes time for a valuation. Ultimately, the recipe for increasing business value is simply building a stronger company. Below are several high-priority actions and best practices to put your business on the right track:
- Cash Flow Is King
A business with a strong history of positive cash flow is significantly more attractive to potential buyers or investors. At the end of the day, the risk and responsibility of owning a business should come with meaningful financial rewards. Instead of simply saying “make more money,” here are practical steps to help improve cash flow thereby increasing your company’s value:
- Evaluate your service lines. Are all of them profitable? You may find that certain services are better outsourced or referred out, allowing your team to focus on your core offerings, the “bread and butter” that drives the highest margins.
- Identify waste and streamline processes. Overcome the age-old mentality of “because that’s how we’ve always done it.” There are likely several processes that can be modernized to become more efficient and cost-effective.
- Revisit your contract terms. Slow collections can choke growth. Offering early-payment discounts or requiring more substantial deposits can support healthier and more predictable cash flow.
- Compare your performance to industry benchmarks. Understanding how your business stacks up against peers can reveal areas where you may be overspending or underinvesting.
- Consider participating in a captive insurance arrangement. Insurance costs continue to rise, and for some businesses, a captive insurance arrangement can offer significant long-term savings while maintaining comparable coverage. While not a fit for every business, it can be a strategic way to reduce operating costs.
- Management, Management, Management
A top priority for maximizing business value is building a strong, capable management team. You need individuals who understand the business deeply and can keep operations running smoothly in your absence. If the business relies entirely on you to function, its value will drop dramatically when you step away. A strong management team not only boosts valuation but also ensures stability during any ownership transition.
- Get Your Books in Order
Accurate and reliable financial information is essential. Your accounting department must produce records that clearly reflect the true operations of the business. Clean books make the valuation process faster, easier, and more accurate. Ideally, you should maintain at least five years of well-organized financial statements to support informed decision-making and to highlight trends and patterns.
- Risk Reduction
An investor will always pay more for a business that is predictable, consistent, and well-managed. There are several steps you can take to strengthen predictability and reduce risk, including but not limited to:
- Diversifying your client base so the business isn’t overly dependent on a few large customers.
- Establishing standardized procedures and processes to ensure work is performed accurately and consistently, regardless of who is executing it.
- Performing regular risk assessments to proactively identify operational, financial, and safety risks before they become larger issues.
- Maintaining healthy financial ratios to demonstrate stability, operational control, and disciplined decision-making.
These efforts create a smoother, more predictable business, something every investor values and is willing to pay a premium for.
- Set Goals and Stick to Them
It can be difficult to step back and look at the big picture, but that’s exactly what valuation is about. Identify your long-term goals and ensure your daily decisions support them. Small, consistent actions compound over time, when those decisions align with your broader objectives, long-term success becomes much more achievable.
Where do we go from here?
A business valuation is often something owners think about only when they need one, which is usually too late to make meaningful changes. Many owners have a number in mind, but when the valuation results don’t match that number, frustration follows. That’s why the steps above matter: they help you prepare before valuation becomes urgent.
Every business is unique, and maximizing value is rarely a one-size-fits-all process. The best way to achieve your long-term goals is to surround yourself with a team of trusted professionals who understand your vision and can help you act on it. The ideal time to start building a more valuable business is today; set clear goals, take proactive steps, and begin creating a stronger, more predictable, and more profitable company.
If you’d like to explore how these strategies apply to your business, our team is here to help. Contact us to learn more about our business advisory services or to schedule a consultation.
