Creating Value

Business owners are often disheartened to discover that their company is not worth as much as they had thought.  This type of revelation should not be taken as a defeat, but rather as an opportunity to grow the value of the business.  Although the start-up of a business may take years to generate a true profit, company value enhancement can be achieved more quickly when the foundation is already in place.

 

Basic Business

 

A solid business foundation is like a blank canvas that can be painted with the fundamentals of growth.  In the simplest terms, a company’s value is its projected future earnings minus the risk required to get there.  To increase value, an owner can raise projected potentials, decrease risks, or do both.  While the formula itself is simple, the factors that are involved can vary, and this is where many business owners try to change too much at once, and thus sabotage the foundation they have already established.

 

Growth Potential

 

The best starting point is to develop a plan that suits the business and addresses any weaknesses that may be present.  Some owners are willing to undertake this process on their own, while other are more comfortable hiring an advisor to determine how value may be best achieved.  If increasing potential is the focus, then factors such as strengthening and protecting a niche, increasing market presence, and widening the customer base can be undertaken.  On the personnel and production side, warehouse efficiency, management capabilities, and the ability to take advantage of opportunity will also help to add value.

 

Reducing Risk

 

For a business that is already set up to grow, but could still use greater value, risk reduction may prove to be an effective tool.  This plan looks at any threats to future earnings and examines expenditures that may be extraneous.  Overspending and debt are the most common issues that businesses face, and these may be overcome through consolidation of expenditure and the reduction of waste.  This may include an initial investment in machinery for better production or schedule changes for time management, but the result is that the money spent becomes value added over time.  As risks are reduced, stock prices and market placement will rise, which then creates marks in the plus column for growth.

 

Sticking To The Plan

 

Regardless of the manner in which a business decides to value add, it is important that once a plan is formulated it is followed.  The most detrimental move a company can make is to enact too many changes at once by taking on over many variables, as this does not allow for any one factor to create change.  A value plan for a company can only help if it is actually followed, otherwise it becomes just another risk.

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