Make Your Business More Valuable

11 Ways To Increase Value and Minimize Risk

Before you launch those aggressive 2020 growth plans it’s important to get your business ready for the new growth. If your business doesn’t have a strong foundation, the Increased sales can put a strain on both cash and operations. Prepare your business to grow by taking the time to really analyze your business and remove any inherent risks. By aggressively reducing business risk, you’ll build a business that is easier to manage and is significantly more valuable. 
How do you minimize the risk in your business? Let’s look at some things you may want to think about:

1. Customers Do you have a customer that generates more than 30% of your company’s total revenues? What if that customer suddenly decided to take their business elsewhere how would your business be effected? What if, because of the nature of your business, you serve one or two large customers exclusively? How could you minimize the risk? 
While adding more happy customers to your business’s customer list is the goal of every growth plan, it is important to be strategic about the additions. Analyze your three biggest customers and look for ways to add similar customer to minimize the concentration in that on big customer. And if you’re that business that services one or two large customers, try to protect your relationship through sales and service contracts.  
2. EmployeesOver-reliance on one or two key employees can sometimes have disastrous results. For example, there’s the top salesperson who generates 80% of the company’s sales who is unexpectedly lured away by a competitor taking a large group of customers with him. Or the long-term company bookkeeper entrusted with all financial and banking functions suddenly retires for health reasons taking 10 years of institutional knowledge with them. Minimize this risk by developing and documenting your key business systems. Build your business to be systems dependent not people depended. Cross train employees where possible. 
3. Business OwnerIf you started your business from scratch, you most likely had to perform most of the functions in the company as a necessity. But as your company grows, an insistence on being at the center of everything can be a significant risk to your company. What would happen to your business if you were to suddenly die or more likely, if you were suddenly disabled and couldn’t come to work for an extended period of time? In essence, you, the owner are no different than a key employee and a significant risk to your company. 
4. Succession and Contingency PlanningA big risk facing many small businesses is that they may not survive the death or long-term disability of the owner. We all have probably had the discussion of what would happen if the owner is hit by a bus, but more ominous is the specter of an illness or other circumstance that suddenly would prevent the owner from actively managing the business. Here’s where a contingency plan would be key. Your written contingency plan should outline who would be in charge of the business as well as any other key employee reorganizations. It also should include instructions as to tasks and duties that the owner usually completes and how to accomplish them. It also should contain some sensitive information such as bank account numbers and passwords, all software passwords especially for QuickBooks or other accounting software. Make sure you discuss your contingency plan with your chosen successor and other key employees. Don’t forget to include your attorney and CPA.
5. Financial and Cash ControlsA big risk factor in business failure is poor books and records. Keeping haphazard records provides opportunity for things like employee theft, vendor overcharging or loss of customer accounts receivables. Have your CPA conduct a mini-audit to recommend processes and procedures that will increase the financial security of your business. Financial controls can prevent cash leaks in your business and often increases your cash balance. 

6. Legal, Intellectual Property & Trademarks Not annually conducting a legal review can be risky especially if you depend heavily on your intellectual property rights and trademarks. These need to be protected vigorously and making sure all your registrations are up to date and in force is key. Even if you don’t have IP or trademark reliance, it’s important to review any contracts, leases or other legal obligations to be sure that you and the other party are in compliance. 
7. Tech and Cyber SecurityDownloading free anti-virus software is not a viable cyber security plan. Small businesses are increasingly targeted by criminals to steal trade secrets, intellectual property, divert online payments and loot bank accounts. Consult an IT consulting firm to make sure your data is secure and all your licenses are up to date. 
8. Human ResourcesMaintaining federal, state and local employee documentation is critical. Not having the appropriate documents such as employment eligibility proof especially if you use immigrant labor comes with hefty fines. Make sure you understand the documentation requirements as well as federally mandated labor posters. Non-compliance comes with heavy risks. Schedule an HR review with a professional to eliminate this risk. 
9. InsuranceEnsuring that your business is protected from property loss or liability risk is critical. Often, insurance is viewed as just a necessary cost with little effort to understand the underlying benefits. Whenever there is any change in your business such as adding additional equipment or selling an unneeded vehicle, your insurance company needs to be notified. Schedule an annual review with your insurance agent to go over current coverages and address additional needs. Take this opportunity to consider some type of cyber insurance as well. 
10. Build an Emergency FundIf you’ve ever consulted a financial advisor, she’ll say the first step in getting your personal finances in order is to begin to build a personal emergency fund. That’s sound advice for your business too. Your business should have an emergency fund of an amount of cash on hand that is kept separate from the company’s operating account. This would be used only in case of an emergency or more importantly, to take advantage of some opportunity such as purchasing a new building or buying out a competitor. Start by scheduling a weekly funds transfer from your operating account to your emergency fund account of some amount. The hard part is getting started but once you do, the balance will grow magically. 
11. Board of AdvisorsBeing the CEO or your business is lonely. Who can you turn to for sound, objective advice? Consider forming a board of advisors. A Board of Advisors is different than a Board of Directors as your Board of Advisors are there to do just that: advise not direct. A Board of Advisors is usually not paid but you should consider buying them lunch at the very least for their time. Meet with your Board of Advisors at least once per year to give them an update on your business’ progress and listen to their feedback and suggestions.  
You may also want to join a peer-to-peer business owner group. These groups are made up of non-competing business owners who meet monthly to help each other manage and grow their businesses. These are not leads clubs but safe places to support each other, share what you know and learn from others. You may have heard of some of these such as Vistage or The Alternative Board. The Louisville Small Business Development Center facilitates a number of these roundtables.
The old saying that “Sales Solves a Lot of Problems” is true but it can also create more problems. Make sure your company is ready!

Dave Oetken, MBA, CPM, EDFP, CEPA, CM&AAGreater Louisville Small Business Development CenterEmail Dave

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