Starting a new business is exciting! But an emotional rush into action can muddy your path and blind your vision. When you stop and get your bearings, there’s a clearer path with road signs to let you know if you’re getting where you want to go.
Driving fast is fun, yet even more fun is driving up the value of your business. Then one day you’ll be able to turn all your hard work into hard cash. Learning to use those road signs, or value drivers, is what helps you build cash flow and business value from the first day of business. When your business is planned around value drivers, you’ve created a short-cut to high business value.
The first critical planning step for any startup is to “Begin with the End in Mind.” This perspective helps you become clear on a plan to accomplish your life goals for your business. To determine those goals, ask yourself these questions. As simple as they sound, you may find them difficult to answer:
When will I want to be out of my business?
What do I want out of my business when I leave (i.e., how much after-tax cash)?
To whom will I transfer my business?
You’ll have greater success in accomplishing your ultimate goal if your answers are identified and planned for from the beginning. They become the framework for the long-term success of your business.
Inside that framework of your life goals for your business are the value drivers. When you pay consistent attention to them over time, they are the vehicles you drive to keep improving the value and cash flow of your business. They are:
A stable, motivated management team. The key members of the team should be able and willing to grow and sustain your business from before your transition, during it and after you have left your business.
Operating systems that improve sustainable cash flows. Develop documented systems that allow the management team to grow your business and continue improving the cash flows into the future.
A solid, diversified customer base. Build a customer base where the loss of one or a few customers does not create a bind on any part of the business.
A quality facility appearance. Maintaining a clean and well-organized facility communicates that the business is also clean and well organized.
A realistic growth strategy. Establish a written plan describing the future and how the growth will be achieved with detail time-line and identified benchmarks.
Effective financial controls. Show that you have provided safeguards of company assets and support the claim that the company is consistently profitable.
Good and improving cash flow — cash is KING! Producing this is truly the life blood of the organization.
Once you understand your value drivers, you’ll need to determine how you will measure the results of the decisions you make to implement these value drivers. These measurements should be simple and objective. The overall measurement of value in most companies is sustainable cash flow. Also keep in mind that the greatest benefits come from implementing all the value drivers.
The next major step is prioritizing your work on all the value drivers by creating your Value Building Plan. This is different from a standard business plan because it focuses on the specific behaviors that will achieve a targeted business value at the end of a specific time frame. This written plan will include specific tactical action items in each of the following categories:
Loni Woodley is a partner at Auer Woodley Hilderbrand & Sanders LLP, a full-service accounting and consulting company. AWHS specializes in helping businesses grow and owners accomplish their goals, through the strength of professionals who have a wide array of experiences in tax, accounting and achieving business success. Contact him at 634-2815.