While saying that your business is an asset might seem a statement of the obvious, the truth is that you can’t say it enough. To use a favorite animal analogy, a business should be like a cow, producing for you for years until you decide it’s time to sell it. It shouldn’t be like a pig, that you just slaughter once and then can’t get more benefit from (even though bacon is very tasty).
Sometimes as business owners we can be so heads-down on the business that we forget all the benefits it has as an asset that we need to cultivate and appreciate. Or we can be so stressed out about things going wrong that we forget that we should have an identity that is separate from the business.
At a very high level, a business is an asset because it’s a vehicle to help you achieve your goals. Those could be financial goals of income now or being socked away for the future. Those could be personal goals of pursuing something you’re gifted in or that you really enjoy.
At a similarly philosophical level, a business is an asset because you can see the ROI in your time and location freedom. That’s what we love about the Remote Local life: building an asset that you can see the benefit from in the near future.
At a very basic level, if a business is a financial asset, you can grow and maximize its value. To go back to our cow analogy, we want that cow being taken care of, munching premium grass, with a warm barn to come back to at the end of a hard day of grazing. Are you doing what you should to maximize the value of your asset? Just a few of those steps include:
- Getting your online strategy on point. It’s not rocket science, it’s just work. Optimize your website and your social media strategy and put your marketing on autopilot.
- Diversifying your clients. You may have heard this before, but if one or two clients are responsible for 80% or more of your revenue, your business is lopsided and less attractive to a potential acquirer.
- Planning ahead. There are tax consequences for a sale. Talk with your accountant to make sure you’re on the same page about what an exit looks like.
- Building a strong team. There are few things more attractive to an acquirer than being surrounded from day one by a knowledgeable and skilled team.
- Having clean books and tax filings. One of the major reasons business transactions fail is a lack of clean books. Sellers get scared off by poor accounting practices or shady tax practices.
The valuation multiple you get for your business is highly dependent on how hard you worked ahead of time to make it a desirable asset for a complete stranger to buy. The difference in multiple can make a big difference, especially when measured in your blood, sweat, and tears.
Say, for example, that your business has an EBITDA of $200,000, the difference between a 2X and a 3X multiple is the price of a home in some markets. Little changes now can mean big value later on. You can still have fun (why do business if it isn’t?), but always keep the idea of your business as an asset in your mind. That mindset will pay off, literally.
This article was written by Neel from MaidThis Franchise, a remote-local franchise opportunity for people looking to escape the rate race and reach financial freedom. Learn more here.