Many small business owners focus on growing their profits, while others are obsessed with sales goals. Business Rule #20 is the key.
Both of them work their butts off – sacrificing their time, time away from family, friends and Lord knows what else.
They mistakenly believe that the only thing that matters is bottom line profits when the time comes to sell their business.
While bottom line profits are important, there is a lot more that goes into the value of a business than just bottom line.
I have found Business Rule #20 is the secret sauce.
Yep – if a business owner works more than 20 hours per week in the business, the value goes down – the more hours, the lesser the value.
And, the exact opposite is true. Every hour less than 20, the company value increases by tens of thousands and thousands of dollars.
An important goal for an entrepreneur to set for themselves is to set the business up in a way that it runs itself without their constant and direct daily involvement.
A business that is not dependent on its owner is worth a whole lot more money than one that is – period.
It allows you complete control over your time so that you can choose the projects you get involved in and the vacations you take. When it comes to getting out, a business independent of its owner is worth a lot more than an owner-dependent company.
Below is a list of 5 simple steps you can take to begin increasing the value of your business.
Give then a piece of the profits. Spell it out in simple terms, and let them participate.
It will give them an “ownership” mentality and their outlook will change dramatically.
If you’re wondering how to figure out an amount, this is what I did for one of my companies –and it worked like a charm: Figure out how much the business needs to operate including your pay as the owner and set it as the benchmark. All profits over the benchmark, I took 60% and divided up the remaining 40% per the revenue percentage generated by each employee.
Here is a simple management technique that will get your employees to begin “thinking” like an owner: Every time they ask you a question, answer their question with a question: “If you owned the company, what would you do?” By forcing your employees to walk in your shoes, you get them thinking about their question as you would and it teaches them the habit of thinking like an owner. Soon, they will begin solving their own problems.
One of my coaches used to say, “If you can’t change the outcome, delegate it.”
Identify the products and services which require your personal involvement. Make a list of everything you do and score them on 1 to 10 scale.
Assign a 1 for easy to teach and a 10 for anything that requires your personal attention.
Start with the smallest numbers first, and begin teaching and delegating. Your employees will feel empowered and thank you for it, and your workload will shrink significantly.
Are you the company’s best salesperson? If so, you need to fire yourself as soon as you can.
Think about how you can create a recurring revenue business model where customers buy from you automatically. Service contracts and monthly memberships are two ideas that come to mind for this article.
Businesses with recurring revenue are worth a LOT more than those that don’t have them and the difference is significant.
Once you delegate most of your daily activities, you’ll have plenty of time to think of how to create automatic customers.
Finally, write a Policies and Procedures manual.
These are a set of rules employees can follow for repetitive tasks in your company.
This will ensure employees have a rule-book they can follow when you’re not around, and, when an employee leaves, you can quickly swap them out with a replacement to take on duties of the job.
You-proofing your business has enormous benefits. It will allow you to create a company and have a life.
Your business will be free to scale up because it is no longer dependent on you holding it back, and best of all, it will be worth a lot more to a buyer when you get ready to sell.
Paul Forsberg is a Business Growth Coach Who Specializes in Self Employed Business Professionals "Make The Phone Ring With Quality Leads, So They Can Get More Customers, & Make More Money." Author of the #1 Amazon Best Selling Business Book "The 5 Fundamental Elements of Every Successful Business .... Why Most Businesses Cannot Be Sold & What You Can Do About It." You can reach him by email at Paul@PBForsberg.com
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