28 Mar Five more things every business owner must know
1. Get paid quickly – A sale isn’t real until you have the money. We see a lot of companies that are profitable but cash poor because their profits are tied up in working capital. It’s great if your business model allows you to be paid up front, but most companies have to do the work before they can bill and collect. That means that you need to not only do good work but carefully manage all aspects of the cycle, including assessing the credit-worthiness of customers, receiving down payments, collections, etc.
2. Make your business less dependent on you – The most valuable companies are not dependent on the owners. That means that you need to capture your knowledge and build processes, systems, and a management team that can operate the company without you. That will free up your time to focus on strategy, growth, and perhaps more free time. We’ve seen some businesses that were so dependent on the owner that they were not sellable because so much of their apparent value was not transferable to new owners.
3. Know your competition – You should strive to know as much about your competition as possible, especially if they have more market share. You have to be objective about their strengths and weakness so that you can learn where they’re better than you. Then you can improve and compete more effectively. It also helps you to understand what differentiates your company so that you can improve your own value proposition for customers.
4. Watch your overhead – Companies have a tendency to increase costs and head count over time. That’s okay if sales and productivity are increasing faster, but you need to be sure that the extra costs are going into areas that add value. It’s easy for new costs to be introduced and then become difficult to eliminate. One way to avoid this problem is to establish benchmarks and monitor important financial ratios such as sales and profits per employee and ratio of operating expenses to total sales, and consider those benchmarks before you incur a new “sticky” cost.
5. Build a moat around your company – Companies are more valuable if they have barriers that protect their market share from competitors. There are many types of barriers based on different business models, including specialization in a vertical market, more efficient business processes, or high switching costs. As you work to differentiate your company, build or improve the areas that will differentiate your company and make it more difficult to lose customers or prospects to competitors.