Every year, investors are advised to review and evaluate their finances before making any other investments moving forward. Most investors opt to do it with the help and guidance of their financial advisors, however there many who ignore the re-evaluation process and decide to go with whatever the investment market chooses to bestow upon them.
Even though we are half way through 2018, there is yet another opportunity for investors to review and re-evaluate their single largest asset – their business. It is important that businesses are treated more as an investment and are appraised in the similar manner as any other investment holdings.
Just as you would redirect and rebalance your investments to attain utmost retirement benefits and other finance goals, it is equally important to refocus your business so as to achieve the short-term goals leading towards overall success of the company.
Generally, business owners follow the below given guidelines for keeping their business investments on track.
1: Clarify the Objective of the Business Investment
As you are viewing your business as an investment, it is important for any investor (experienced or inexperienced) to know what they are trying to accomplish.
During the initially days, the goal usually is to grow the investment portfolio as quickly as possible. But as you start to get older, maybe it is time to slow things down. In this case we mean, redirect your investments or at least reduce the risks to preserve the retirement funds. On the other hand, as you grow older, your personal situation is bound to change. This should encourage you to re-think the investment strategies you used earlier in life.
Similarly, for business owners, their initial focus is on growing their company and its sales. As the owner starts to approach their retirement, transitioning the company to another younger and more reliable individual, either by sale or by gift, becomes the priority. Just the way it is important for investors to protect their retirement funds, a business owner should protect the transferable value of their business (especially when they are planning to leave it).
It takes great patience and high discipline for a person to stay focused on their goals. However, at some point the owners should decide on they plan to leave their business. If they are planning to sell it, the overall value of the business must be established and then reviewed regularly to avoid unpleasant surprises. If the motto is to transfer it to another employee or a family member, the ability of the receiver to manage the ownership and obtain finance should be established before transferring your authority.
2: Review Your Business as an Investment Portfolio
Apart from being a source of income, a business is a capital asset. Hence, it is important to get your business financially stable before you plan to quit from your position. Alternative finance firms not only provide additional funds required to attain the financial stability but also provide professional guidance on how to maintain the stability in future.
It is important for owners to know two things:
- The earning (income/profit) the business is making or will be making
- The worth (value) of the business
The business owner’s objective for their business determines which of the above two is more important. If you are determined to sell your business, it is important that you first establish and then review the value of the company.
3: Stay Disciplined Until the Very End
Like we mentioned above, it is important for investors to be focused and disciplined. However, it is even more important for a business owner to be so.
It is essential that an owner understands the company’s:
- Cash flow
- Adjusted income
- Transferable value
You also need to have answers to the following questions:
- How well does your company benchmark against its competition in the same region or industry?
- What potential changes could be made to the business operations that will have the greatest impact on its income and value?
- How well has your company performed over a period of three years?
- What will it take for your company to grow by £(X) amount?
- What impact will the growth have on your overall net worth, including the business-related investments?
- How well do the business objectives and plans align with your personal objectives and what must be done to make sure these are aligned?
Once you have answers to all the above-mentioned questions, you will start to see the specific steps required to guide your business closer to its actual purpose.