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Shedding some light on
Business Value: Part 1
You’ve already succeeded in clearing the biggest hurdle to your entrepreneurial dreams. By establishing a practice, and a business model that works for you and your clients, your journey toward long-term prosperity is well underway. And, as you approach your financial destination, you deserve to make the very most of your career efforts. That’s where business value comes into play.
In a crowded field of industry offerings, creating, protecting and realizing the maximum tangible and intangible value of your business is paramount. Chances are that you’ve already established a business plan that suits your personality and skills, and honed your process of identifying clients that fall in line with your practice model. However, it takes a much more conscious effort to incorporate the methodology of “building of business value” into your day-to-day activities.
While some elements of value such as cash flow are readily apparent, it’s critical to recognize that less tangible components of your business (i.e. intellectual capital, transferability) are equally as valuable. You also need to understand how the absence, or potential loss, of these elements can adversely affect the ultimate worth of your career efforts.
Components of Business Value
There are a number of avenues you can take to grow the value of your business. The key to success is found in choosing the right path, based not only on your goals, but also on the structure and potential of your practice. Therefore, it is essential for you to conduct an unbiased evaluation of all aspects of your business. Most businesses share similar elements that, in total, equate to their overall value. These usually include:
• Cash flow
• Business transferability
• Client transferability
• Processes and systems
• Human capital
• Intellectual capital
Once you’ve identified the current architecture of your practice, you will be in a much better position to determine the most effective method of growing its value.
Methods of Creating Business Value
The process of incorporating a business value plan into your practice consists, in part, of expanding your existing business model to account for growth in the elemental areas of potential value outlined above. From there, you can proceed to identify the most sensible roadmap to grow your practice over time. The primary models for creating business value fall into several categories often emulated for overall growth objectives:
• The GAP Principle©
Organically growing your business by identifying its current status, along with your ultimate goals, and then developing a plan that moves you from point A to B during its intended life cycle.
• Buy/Acquisition
Expanding your practice by purchasing or acquiring other advisory businesses. To build value with this model, certain elements must be in place to successfully integrate other practices into your own.
• Internal Succession
Structuring your business so that its operation will continue successfully with your team intact, including a principal successor, when you leave the business. The strength of this model is that it can be applied during both an anticipated departure or in the case of an unexpected life event.
• Outright Sell or Acquisition
Structuring your business so that it will be attractive to acquire at a time when you choose to execute your exit strategy. Specific “qualities” are essential to positioning your practice for purchase or acquisition.
The good news is that you’ve most likely already developed an overall business plan for your practice. You can use your business plan as a springboard to incorporate a business value program that suits your specific needs and objectives, while maximizing the net worth of your career efforts over the long term.
Click here to view video or download audio clips of the presentation
In the next edition of FSC e-Luminator™, we will focus on phase two, “Protecting Your Business.”
Information provided through a partnership between FSC Securities Corporation and David Goad, president of Succession Planning Consultants."