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IBF Entrepreneur Online –
Whether you’re planning an exit or simply want to know what your firm is worth, it pays to take these simple steps
nowing what your company is worth isn’t only important when you’re looking to cash out. And it’s not enough to just say ‘a million dollars.’
Giselle Bodkin, a partner at BDO Canada, has spent over two decades advising businesses on succession and tax planning. She says getting your business valued is vital for retirement, succession, and estate planning, as well as if you’re looking to be acquired or to buy out another company.
“It’s a reality check,” said Bodkin, speaking at the PROFIT/Chatelaine W100 Idea Exchange conference held in Toronto on November 26. “Most [business owners] think [their] companies are worth more than what it’s really worth.” (Note that undertaking such a valuation isn’t cheap—it should cost $7,000–$10,000 for a company with $5–10 million in sales, Bodkin says, and up to $25,000–$50,000 for a firm with $20–75 million in sales.)
But there’s no glory in staying stagnant. If you really want to increase the value of your company, Bodkin recommends you do the following 13 things:
1. Look abroad
Diversity the geographical markets you sell into. “If you just deal in the U.S., and the U.S. crashes and burns, that’s not good,” notes Bodkin. “You need to be in different markets.”
Read More About Building Your Foreign Business Here
2. Find new customers for your product
It pays to diversify the markets you sell into. “I have a client with a great business, making lots of profit, but 80% of his sales are from one customer,” Bodkin recounts. “How much is that business worth? Not a lot.”
3. Scatter your product widely
You should also diversify your distribution channels. “If you’re in a retail market and everything’s switched to online, that’s not good,” Bodkin notes.
4. Do more, faster
If you’re not always looking to umplement processes that boost efficiency and/or productivity, you should be. “We all know about lean manufacturing, but we need lean management,” suggests Bodkin.
5. Make yourself replaceable
If your business can’t run without you, it’s in big trouble, value-wise, Bodkin says. Spread key knowledge about how to run the business more widely among managers and/or employees. “Every system needs to go, whether you’re there or you’re not there,” Bodkin suggests.
6. Prepare to grow
There’s not a lot of value in thinking small. Instead, it’s better to structure the company to make it easier to scale up operations substantially.
7. Do it again and again
When you increase the share of total sales derived from recurring revenue streams, you increase your company’s worth, Bodkin advises.
8. Buy, sell, trade
Growth doesn’t have to come organically. Increasing revenue through mergers, acquisitions or divestitures is a terrific way to amp up value, Bodkin says.
9. Concentrate on what you’re good at
While diversification is important, it’s also good to concentrate on a single market segment in which the company enjoys a significant competitive advantage. “Sell more things to existing customers, and sell different things,” Bodkin suggests. “Focus on sales that make you money versus those that don’t.”
10. Put a patent on it
Smart entrepreneurs take steps to develop and protect intellectual property. “I just had a client the other day who’s had a falling out with his shareholder, and he has no shareholders’ agreement, no patents and trademarks,” says Bodkin. “The other shareholder can just go and start another company, and this guy is out of luck.”
11. Stop the copycats
Related to the point above: when you develop products and services that are hard for competitors to duplicate, you make your company worth much more.
12. Put your money where your ideas are
Increasing your capital investments (by, say, spending on new machinery) is a very tangible way to make your business more valuable.
13. Consolidate and thrive
Finally, to really make your business worth more, you have to protect and grow the value of its assets. “If you have a key salesperson that has all your customers, they can walk out the next day and go to a competitor,” Bodkin cautions. “You need a non-compete clause, you need confidentiality agreements, and you need insurance.”
Source: Profit Guide
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