Commercial Strategies – How does the Entrepreneur Increase the Value of his Company?
Business owners too often get caught up in phenomenal early success and as a result fail to equip their organization with business strategies to accommodate the 3 stages of business growth: (1) Start-up; (2) Growth; (3) Exit.
START UP
Aside from the obvious… having adequate resources and good management, entrepreneurs should establish a business development plan from the outset. The foundation of your business. At this early stage of growth, the strategy must be something informal, a vision, so to speak. You can’t afford to get stuck on a plan so soon.
As the company evolves, it looks for a pattern of decisions to develop to justify its strategic planning. You must learn to adapt to feedback. BE FLEXIBLE IN YOUR SCHEDULE. Your company is taking shape.
THE GROWTH PHASE
As the business grows, you can now see and feel “the business” and structure a more formalized business plan.
Trading strategy, however, can never be fixed. Your customers’ needs will change, your competitors, both existing and new, will introduce new products and services… which means you’ll have to continually rethink your strategy to compete in changing environments. There will always be external changes in the market, competition, technology, and economic and political changes.
Managing Growth
- You have to continually hire and train good people. Train them for future skills.
- Establish organizational policies and controls to continuously monitor cash positions.
- accounts receivable
- inventory systems
- Accounts Payable Policy
- Monitoring tools to track financial performance
- Financing: It’s all about cash. For current and future growth.
You should always be looking to improve your cash flow. Try to avoid loans. You can factor accounts receivable, maintain a strict collection policy, negotiate better payment terms with suppliers, discounts to customers for early payment. Maybe even increase the margins if it’s warranted.
SO YOU HAVE CREATED THE VALUE, HOW DO YOU GET OUT?
What most entrepreneurs don’t understand is that you need to develop your exit strategy early in the growth stage. Understand the important value issues essential to the success of your business journey.
The return on invested capital must be greater than an investor’s opportunity cost of funds, that is, operating profit margins and the use of invested capital. Is there an opportunity for a new set of owners to create more value than you? Is your business scalable…does it have growth potential? An excellent way to create value.
What are your options?
- You can sell your company
- Strategic sale to a competitor: You can pay a premium.
- Final sale based on cash generating potential
- Employee Stock Ownership Plans (ESOPs) sold for employees.
- IPO… for a multitude of reasons, but primarily to provide a liquid market for the company’s stock.
How to value your company?
- Market comparables
- Free Cash Flow Valuation
Terms of sale
- Take cash instead of cash and stock.
Investors are always worried about how to get out. Entrepreneurs should also make exit an early consideration. Don’t wait for something to go wrong to structure your exit.
When all is said and done. Invest carefully and know what you want from life and get it.
by Bill Bradley
Bill Bradley is the founder of Americas Best Franchises. America’s Best Franchises offers an informative, content-rich web portal with a mission to match prospective entrepreneurs with the perfect franchise or business opportunity. In addition, America’s Best Franchises offers a superior, cost-effective, results-oriented advertising solution for the franchisor community and business opportunity. www.AmericasBestFranchises.com