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5 Indicators That You’re Building Long-Term Value in Your Business

July 24, 2023

You want your business to be healthy and sustainable, and you know that building long-term value is the key to achieving financial security. How do you know if you're on the right track? We explore here.

As a business owner, you invest a significant amount of your time, energy, and passion into building your business. Your income relies heavily on the success of your business, and your ability to retire comfortably will largely be determined by the long-term value of your business.

There is a tremendous opportunity to create wealth as a business owner, but there is also significant risk involved by having much of your personal wealth tied to one asset. Unlike your employees, whose 401k retirement accounts are invested in numerous companies to minimize risk, your retirement plan is concentrated into one particular "small cap" stock - your business.

5 Indicators of success

1. Timely and Relevant Financial Reporting

Accounting is the language of business, and your financial statements are essential to understanding your business's performance. Long-term value is created by having a strategy that aligns with the overall vision for your business, and a scorecard to know if you’re on track or whether you need to course correct. Having an annual budget and monthly financial statements are key indicators that your business is planning for the future and monitoring performance.

By keeping track of your budget and performance, you can ensure you're on the right path to building business value.

2. Clearly Defined Roles

Having clearly defined roles for your business is essential for creating an effective and efficient organization. Unclear roles lead to confusion, and having two people in charge of one task can often mean that no one performs it. In highly effective organizations, employees know their roles, understand what they are responsible for, and are accountable for their performance.

Defining the roles for the organization and ensuring the person in each position meets the requirements of the role, will ultimately result in the increased productivity and growth of your business, leading to long-term value.

3. Business is Growing

If your business has been able to maintain a steady level of growth, it's a sign that you're building long-term value. Whether this means expanding into new markets, launching new products or services, or simply managing existing customers better, the ability to grow your business over time demonstrates a strong marketing function for your business, which is a key indicator of business value.

4. Profitability is Improving

Ultimately, if the profitability of your business is improving, it’s a sign that you're building long-term value. Analyzing key financial information like sales, gross profit, and expenses can help you identify any areas of improvement and build upon them. There are many ways to improve profitability, and what’s required is an understanding of your customers, supply chain, and operations, and identifying opportunities for incremental improvement. Improving profitability is well worth the effort. If you are considering a strategy of selling your business to a third party, improvements in profitability can have an exponential impact on business value.

5. You’re Able to Take a Vacation

Taking time off is an important part of taking care of yourself as an owner. It’s also an indicator of business value. If you're able to step away from the day-to-day operations, it’s a great sign that you have the systems, processes, and people in place for the business to run independent of its owner, a key indicator of business value.

Building long-term value in a business doesn't happen overnight - it takes dedication, commitment, and hard work. As a business owner you know the importance of building long-term value and the opportunity it creates for financial security. If you keep these five indicators in mind, you can have confidence you’re on the right track towards building the value of your business.

We Can Help

If you require assistance in creating a plan or implementing strategies for building long-term value in your business, we can help. Let's collaborate and find a solution together. Contact our CFO Services team.

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