For many business owners, their business provides a means of employment and an income. Often, they started the business for that very purpose. However, by not treating their business as an asset, they could be missing out on growth opportunities, on the potential to move from running the business day-to-day to a more flexible and free life, and of course on selling the business for a meaningful sum of money.
Because business owners don’t think of their business as an asset, they don’t manage it as an asset. They focus on operating their business successfully but they don’t focus on growing the value of their asset. Focusing on operational improvement may be the least-reliable way to grow a business’s value.
Rather than seeing the business as a job, business owners should view it as an asset. By doing so, they can realise growth opportunities to a point where it could change their lifestyle. This means the owner focusing more and more on what needs to be done to increase the business’s value.
Once the business’s value is high, it becomes more attractive for potential investors or buyers, and it can deliver a more sustainable and consistent income stream. And, by increasing the business’s value in this way, owners can spend less time at work per se, and more time managing their asset.
Growing the value of a business requires an approach that looks beyond operational concerns towards ways to monetise the business. This could include new business models, geographic expansion, vertical integration, franchising, and more. Each option brings with it a certain amount of risk and capital investment required while delivering often higher levels of operational leverage and scalability.
Once the business is established with strong foundations, it becomes possible for the business owner to examine these potential growth strategies and pursue models with higher potential value.
The value of the business comes primarily from its core asset/s, whether that’s a piece of equipment, a patented process or another piece of intellectual property, a customer list, a brand, or even the company culture if it’s strong enough. The core assets are the main items of value that a purchaser would receive by buying the business.
By combining strong core assets with business fundamentals and choosing the optimal business model, the owner can create a high-value business that delivers a reliable income stream without requiring the owner to work inside the business as an employee.
The ultimate aim of any business owner should be to create a business that they can step away from while still reaping its rewards. Some business owners don’t want to step away from their business because they enjoy being involved. That approach is perfectly valid; but to achieve maximum benefits and value, it’s important that they understand just how crucial it is to set the business up so they can step away if and when they want to. This also means that the business will be able to continue operating and providing an income for the business owner even if they are, for some reason, unable to work in the business they’ve created.
For other business owners, the business is more of a means to an end. They set the business up specifically so they could step away from full-time work and enjoy a more relaxed or flexible lifestyle. Again, the key is to manage the business to a point where it doesn’t require the owner’s day-to-day involvement.
Regardless of the motivation, the strategy is the same; create a business that operates as an asset instead of an employment vehicle.
Article by Andrew Laurie, CEO, entrepreneur and business coach and author of “Thirty Essentials: Strategy”
18 – 19 March 2020, Marvel Stadium, Docklands, Melbourne