Recently BRW released their annual BRW Rich list. Flicking through the pages it becomes apparent that while there are many who attribute their wealth to success in property deals and some by inheritance, by far the majority on the list became wealthy through business. It may surprise you that not all of them are the best manufacturers of their chosen widget or the best provider of their service. Having a good product or service is only one part of the picture. There needs to be a demand for it and a good business model to support it so that you can scale up to meet the demand as the market grows.
Here are some key steps that I have gleefully stolen from the masters while watching and copying from afar.
If you’ve heard the term “work on your business, not always in your business” and wondered what it really meant, the following 6 steps will clarify this for you.
1. Create The Right Corporate Structure
There are many ways to structure your business holdings and it’s important to get the right advice from the right advisors. The accountant who has done your tax returns for the past 5 years is not necessarily the right person to advise you on your business structure, neither necessarily is the lawyer who did your will. Structuring your entities purely for the purpose of reducing your tax liabilities is extremely short sighted and may not be appropriate for the purpose of building value into your business. Take the time to set things up properly, considering all aspects of what your over all objectives are.
2. De-Risk Your Business
If you were a potential purchaser of, or investor in your business what would be your main concerns? What would stop you from going ahead with the transaction? If your not sure, then do what any savvy business investor/purchaser would do and run a Due Diligence on your business, find all the deal breaking problems, create a plan to resolve them and then execute your plan. You will find that the value of your business will increase and you will almost certainly find that as a result of making all the necessary improvements, you now have one pretty fantastic business.
3. Show Profit
Is your accountant a compliance only accountant? If so then why take business management advice from him/her if they believe their primary role is to reduce your tax liability only? Why is this a problem? Well, the easiest and most popular way to reduce your tax is to prove that you’re not profitable. This is an issue because one of the key indicators of business value is profit. In fact many business valuation models rely solely upon a multiple of profit. So obviously that means: no profit = no value and no value means you have little to no equity in your business as after all, 100% of nothing is still nothing.
4. Attract Capital
If you have completed the above steps and have a viable plan for expansion into new markets, products or services then you may have a good case for attracting capital investment to fund your expansion. Depending on your business stage and your industry category you may be able to gain the interest of wholesale, sophisticated or high-net-worth-individual investors (different from Venture Capital or Private Equity which is also another option). Their level of interest will also depend on your openness to divesting part of your ownership to them, your acceptance of external accountability and the quality of your business plan and exit strategy. Capital investment will improve the value of your business. By purchasing shares in your company at an agreed rate the investor secures the new company valuation and by funding your expansion plan they help you grow the profit and therefore the value from this newly established base.
5. Expand Your Business
You can achieve this by taking your existing product/s or service/s to a brand new target market, developing and marketing new product/s or service/s to your existing clients or by developing brand new business by marketing new product/s or service/s to a completely new market. A plan with milestones built in may include all three strategies. Whatever path you take, you now have other vested interests involved in your business, keen to see you make it a big success….so get on with it!
6. Exit Your Business
Now I know that many of you will be thinking, “why after putting all the effort into building this business to such great success would I ever want to leave it?” But let me assure you that you will definitely leave your hugely successful business one day, you can either leave in the back of a limousine or the back of a hearse. The choice is yours.
I ask you:” Why, after building so much value into your business would you not want to sell part or all of it?” Like many other assets you may choose to invest in, a well constructed business only releases it’s full value to it’s owner at the point of sale, the trick is in selling it to the right buyer.
If you would like an obligation free chat about your business improvement or capital raising strategies, please feel free to contact me directly.
Article originally published at: www.capitalcorporation.com.au/media/News/Capital_News/Capital News 9 – Six steps to build wealth through business Aug 10.pdf