Once you’ve built up a successful business, you’ll want to see a healthy return on this investment reflected in it's valuation. In today’s turbulent business environment, a once stable and profitable company can quickly decline and fail to grow (growth in small businesses slows by 40% during difficult decade), losing the hard-won value you’ve built up.
If you’re a mature owner looking to retire in the near future, or an ambitious entrepreneur who’s planning to exit and start your next business idea, this loss of value is seriously bad news!
The key is to spot the potential threats to your business value (What is valuation? How it works and methods used), and to ensure you’re doing everything you can to keep your business viable, relevant and profitable.
The value and equity (what is the difference between enterprise value and equity value?) that’s locked up in your successful business is your nest egg. It’s the asset that will power your future retirement, buy your family that new home, or the unrealised capital that will allow you to invest, begin new enterprises or fund your lifestyle.
So if the value in your business drops, this can fundamentally undermine your future plans and leave you without the capital to take these next steps.
Here are five key threats that may be decreasing the value of your business:
A reliance on the founder that limits growth potential
A modern business should be systemised and scalable (the importance of scalable business models). If you, as the founder, are still integral to your everyday operations, this blocks innovation and limits the potential growth of the business.
Outdated equipment or technology
If you’re using outdated equipment, technology or software (5 ways outdated technology is holding your business back), this can reduce your overall operational efficiency, increase your running costs and make your business less competitive in the marketplace.
3. Failure to keep pace with the market
Markets change quickly! The emergence of disruptive competitors, innovative new products or changes in customer behaviour can leave you lagging behind your competitors (Ahead of the Pack: 8 ways to keep your business competitive) losing sales and revenue as a result.
4. Negative reputation or brand awareness
Poor customer satisfaction scores, or bad behaviour by your employees or top team, can quickly dent your reputation as a company (what are the effects of reputational damage). Negative reputation can damage your brand, deter customers from engaging with you and, subsequently, reduce the company’s value.
5. Poor financial health as a business
Potential buyers want to see that your business is financially viable (news and opinion: the importance of financial viability for businesses). A high debt-to-equity ratio can make a business more vulnerable to economic downturns, and poor cashflow will hinder your ability to invest in growth, pay bills and meet your financial obligations (all red flags for investors and potential buyers).
The business value of your company (business guidance: how to value a business) isn’t static. For the business to maintain value, it needs to keep up with a changing market, adopt new technologies and make solid plans for growth.
We can help you understand the key areas that could be improved within your business, to help you plan your strategy and an action plan aimed at keeping your company relevant and valuable well into the future.