Maximizing Your Business Valuation
By Joshua Liberman, President, Net Sciences, Inc., ASCII Group Member Since 2013
The old adage most IT businesses were started by techies, not business people still rings true. But when it comes time to sell, potential buyers will be savvy individuals who grasp the details of business valuation. So let’s focus on maximizing your business valuation by developing and documenting processes and procedures, building client relationships, learning your tools, and living by your numbers.
Developing And Documenting Processes And Procedures
Most small IT business owners have a gut feeling for the need to create processes and procedures, document and implement them. Many also realize the more similar your clients’ environments are, the easier they are to manage and the more profitable your business will become. But it is also important to understand the concept of moving your work “down the cost chain” by turning complicated processes into a series of smaller, less complicated, and well documented steps that can be executed by lesser skilled personnel, at lower cost. Rolling these all together and thoroughly documenting every aspect of your business makes the difference between the good and the great, as well as the difference between getting by and being highly profitable.
Build Relationships With Good Contracts
Relationships come first and one should never be in the position of trying to litigate satisfaction. If you don’t keep your clientele happy, all of your three-year contracts will not save you. The value of relationships extends to your employee base as well; a stable staff carries real value. Creating good contracts is important and can enhance your relationships by clearly delineating terms, preventing misunderstandings, and protecting the client relationship, all of which add to the bottom line today and when you finally sell the business. A good contract spells out the relationship, commitments, and expectations of both sides, provides for good, clear remedies, and includes details such as exclusions, severability, and assignment provisions that enhance the value of the business.
Learn To Use Your Tools
There are three tools every IT provider should learn to master, whether they are MSPs, system integrators, or other. These are the basics; an accounting package, a remote monitoring and management (RMM) tool, and a professional service automation (PSA) tool. Working through the list, if it isn’t in your accounting system you cannot bill for it or draw upon it for your metrics. If you cannot do it with your RMM and/or in an automated fashion, it costs too much. And if it isn’t in your PSA, well, it just didn’t happen. Choosing the right tools that work, grow with your business, and integrate well into your systems is crucial to your business profitability. Using these tools to enhance your business valuation improves your profitability as well, creating a virtuous circle of improvements.
Learn To Live By The Numbers
Good IT business owners can balance the company checkbook, track AP and AR, manage cash flow, and perhaps execute payroll and taxes. But this is the arithmetic of business, and the real value is in the mathematics. Great IT business owners learn to identify, track and manage the metrics that are key to your profitability and again, to increasing your business valuation. Learn which products and services are the most profitable. Learn which processes can be improved in order to wring more profitability from them. Learn how to develop more organically profitable offerings. But most of all, figure out what costs what, how profits are derived and how to control costs effectively, in each case driving that bottom line higher and making your business all the more profitable.
Create well documented and highly repeatable systems, build client relationships that are enhanced by good contracts, learn to use the right tools and to live by your numbers. Doing all of this will improve your efficiency, streamline your life and create a more profitable, more valuable business. And once all is said and done, if you were a buyer, isn’t this the sort of business you’d be looking for?