How is value measured and created in your company? How do people around you define value? For your customers, value could mean that your company provides honest service on time at prices that are perceived as fair.
For your employees, value could mean feeling that they work for a company that treats them well and that they are rewarded in some way for their hard work.
For your vendors, value could mean that your company maintains a professional image that benefits their brand's identity, and that they receive payments on time.
All of these things directly affect the value that you, the owner, and your equity investors receive from your company. But what does value mean to you?
Maybe it means you have some freedoms that you didn't have when you worked for someone else. Maybe you feel a strong sense of accomplishment running your own business. However, if your company is not achieving financial value, the other forms of value that you perceive will be short-lived. Your company must achieve financial value.
In the end, your business is a financial asset that can either be sold or purchased by you, the owner. Every day that the company is not sold by you, it is purchased by you. Think about that for a moment. Every day that you go to work, you make a conscious decision of whether to buy into your company or to sell it.
If your accountant suggests tax strategies to reduce your company's tax liability, which in effect reduce your company's profits, you should discuss your long-term plans. Some tax strategies will not affect the sales value of your business; others might.
Tax planning should also be a part of your long-term strategic planning. Potential profits that end up being reduced if you take a larger salary/bonus should not affect your company's sale value.
Financial value is the creation of wealth. The creation of wealth makes it possible to achieve consistent customer, employee, and supplier value; this increases wealth even further. There should be no bad conscience on the part of the owner for achieving financial success. If the company does not consistently provide financial value, everyone loses.
I read a book about the development of Home Depot that describes the difficult time the founders had trying to finance the startup company. Everyone they approached felt that an adequate ROI was not possible based on such a large asset (inventory) base. Sales numbers required to earn an adequate ROI at the prices Home Depot stores anticipated selling them for had not yet been achieved.
Business instincts eventually won out over business as usual. Huge financial value has been created for many people since the company's early beginnings. Financial strategies were still used, but in an "outside-of-the-box" way that had not been thought fiscally responsible before.
However helpful and informative you may have found these articles, remember they are only tools to assist you in decision-making. They should not take the place of your business instincts, but should support them.
Roberts is the owner of Roberts Commercial Lending Co. LLC. He can be reached at 586-716-8329 or CommercialFnnc@aol.com.
Publication date: 04/26/2004