Many SME owners fail to build a valuable business. We think that needs to change.
People who set up their own business usually do so with the intention of becoming “their own boss”, making good profits, achieving social recognition and creating a high quality of life and financial security for themselves and their family. But the reality often paints a different picture. After a relatively successful initial phase characterized by enthousiasm, the entrepreneur often becomes a slave to his or her own company. Long working hours and little personal freedom are often the price. Vacations and free time with the family are often sacrificed for the company. On the income side, things are no better: The salary is often lower than that of key employees and also lower than expected and there is no money left to build a decent pension for the future.
This doesn’t have to be the case!
When determining the value of a company, it is usual to use the level of turnover, profit and a series of multipliers that the market uses for a particular sector or type of company. However, if the business is not saleable, this remains a theoretical, unrealizable value. In other words, even a profitable business situation with an attractive product range and a reputable customer base may have little value if everything depends on the owner’s expertise and customer relationships.
Job versus valuable company
Are you also the focal point of your company? Do all processes and decisions come together in your company? If so, this has a negative impact on operational activities, employee motivation and your company’s opportunities for growth and development. Instead of a company, you have simply created a “job”, which is often accompanied by a poorer quality of life. Often even all your own savings are invested at the beginning and should be reflected in the value of your company. Unfortunately, this is often zero! This is because the business is de facto unsaleable, as the company revolves entirely around your professional expertise and the operational processes are completely dependent on you.
We are of the opinion that this should not be the case!
For years, our management team has been showing entrepreneurs how to turn a “job” into a valuable company. The most important step of all is to recognize how the value of a company is calculated. The next step is to learn how to work more “on” your company. Valuable companies also function without the owner. They have automated processes and all employees can run the day-to-day business independently of the management. Thanks to good documentation, knowledge is anchored in the company and the company becomes independent of the owner. Ideally, such a business can not only be sold for a good value, but can also be further developed and expanded. This can be done organically or through franchising and partnerships. In this way, you create high material values for yourself and your family, so make sure you make provisions!
From the outset, consistently focus your company on the highest possible sales value and constantly develop it further. This will allow your company to grow beyond a certain critical mass, leading to more stable earnings. And the development of processes, methods and systems means that there is no dependence on a few irreplaceable people. Both together automatically lead to a higher company value. After all, these two criteria are important parameters for a potential successor.