Value - The Most Critical Business Metric
Updated: Feb 7, 2019
"If the objective of the business owner in the long term is to create and grow wealth then the value of the business is the most critical metric that should be considered in every business decision."
Value is the only metric that combines profitability, risk and investment in a single measure.
It tells you if you are creating or destroying value, it gives you a yardstick with which to measure improvement, it tells you whether to invest in the business or not and forms the basis for exit strategies and succession plans.
And yet most small businesses are happy to guess the value and not get expert advice that will influence your value decisions.
We all realise that the SME market is not like the ASX - the stock exchange operates on principles which help promote a transparent and efficient market with which business owners can diversify investments to reduce risk.
But that doesn't mean there is no value in a structured process that critically assesses your business consistently and reliably against measurements such as cash profit, capital investment, changes in working capital and risk.
Our estimates suggest that more than 90,000 businesses will need to know the value of their business in order to make informed decisions every year. Many will simply close their doors and sell the equipment rather than try to cash in their business. And this may be a valid strategy - as long as you have reliable information on which to base this decision.
Yes the value of a business is directly related to the money that someone puts into your bank account in exchange for the business. But until that point eventuates wouldn't you prefer to have a road map that guides your decision making or would you prefer to operate on blind faith that someone will give you the money you want?
Perhaps a Lotto ticket is more appropriate?