3 Metrics that Propel Business Value Growth

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When you consider how to accelerate business value growth, there are innumerable factors that play a role. While you may have an idea about the tangible things, like profit margins and capital, there are intangible assets to consider. 

To a small business owner, the value of their company is much greater than the sum of its parts. The time you’ve invested, difficult decisions that have kept you up at night, and sacrifices that you’ve made to get where you are cannot possibly be simplified into a dollar amount. 

The value of human capital is also pivotal. You, better than anyone, understand the unique skills that each employee brings to the table, the talent you have circulating within your company, and the work ethic that can’t be quantified with a number. 

But, as your business continues its upward trajectory, or as you approach transitioning out of your business, it’s imperative to have a firm idea of what your business is worth to investors, buyers, and potential partners. This is especially true if you are looking to make a large investment, as banks and lenders will request proof of business value before making a final decision on lending you money.  

So, to get you started on this perplexing equation, let’s look at three business value growth metrics that can help you take on the tough task of assigning your business a dollar amount and helping that dollar amount grow. 

Profitability

This one’s pretty obvious, but the more profitable your business is, the more value it has in the eyes of investors, stockholders, lenders, and buyers. But, don’t fall into the common trap of thinking that profit is the sole indicator of business value growth. An increase in profits doesn’t necessarily demonstrate growth.

One example of this is seasonal businesses. A landscaping company will see an increase in profits from March-October, but that isn’t a clear indicator of whether the company grew in value. In this instance, a better indicator would be comparing the year-over-year profits to competing landscape businesses in your area. This would give you a better idea of your growth than a profit figure would. 

An article from Financially Simple summarizes this idea nicely:

“Having a profitable business is important to your company’s survival and its attractiveness to investors and buyers. However, if profits are the only thing you’re seeking to improve, then other areas of your business will suffer. In an attempt to save money, you may hire employees with average skills, so you don’t have to pay higher salaries for employees with exceptional skills. In an attempt to keep your profit margins high, you may keep outdated equipment and antiquated technological systems in place that hamper your operations instead of investing in state-of-the-art equipment and technologies. Although you’re keeping your expenses low and your income high, you’re neglecting other fundamental areas of your business.”

Future Growth Potential

When it comes to investors, your business’s future growth potential plays a pivotal role in whether or not your company is worth the risk. Whereas profit margins are more focused on your company’s microcosm– how many sales you are making in a particular time period versus the amount that it costs to keep you up and running– future growth potential is more comprehensive. 

Just a few of the factors that are considered when calculating future growth potential include planned market movements, past and future product development, your success with marketing, your ability to expand sustainably, and even the drive and determination of you and your employees. 

This metric is a favorite for both investors and owners because it considers qualitative and quantitative data. Your business may be vastly undervalued if you’re only using numbers to calculate what it’s worth. Business A may look more valuable on paper. If you pull back the curtain to reveal that they are skipping out on rules and regulations, have a high employee turnover rate, or are not continually investing in new kinds of marketing, that value is not sustainable. The key lies in predicting the trajectory, which shows a much clearer picture of business value growth.

Competitive Advantages 

What makes your company stand out in your industry? Why should customers choose you over the other guys? What trade secrets, talents, or services do you have in your hand that gives you an edge? Whatever those things are, they are your competitive advantages. 

Cultivating a premium set of competitive advantages helps protect your business by reducing risk and blocking out others in your industry from infringing on your company’s niche. Even if you are one of six outdoors stores in your area, you can offer any number of things that may inspire customer loyalty and create sustainable growth. Whether it’s employing a local trail guide for a few hours each week to help folks map out their next hike, being particularly adept at creating compelling marketing, or having a reputation for providing the best customer service around, spend time nurturing and showcasing what makes you unique. 

Calculating business value isn’t easy. To you and the people who care about your business, it’s impossible to quantify everything that makes your company great. But, by keying in factors that stimulate business value growth, you can move forward in helping others understand what it is that makes your company worth taking a second look. 

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