Starting a business is just one of the many tough projects you’ll have to tackle in life. But once you start, your work is far from done. You’ll need to constantly push yourself to keep your business healthy. And you’ll also want to build some value into the business.
Valuable businesses are good business to own. They run better, are healthier, and are typically more profitable. And then if a day comes when you want to sell your business, you’ll be more successful at fetching a better deal.
A lot goes into determining business value, and the broker you work with will ultimately be the one to help you come up with the right number. But it’s a good idea to understand the whole process so that you can take the right steps to maximize the value and health of your company.
Statistics are a key part of any business, but their role in determining value is often not fully appreciated. But when you see how important they are, you’ll be encouraged to keep better records and data on your company.
Probably the most obvious (but no less important) way statistics affect the value of your business is in proving revenue. The starting point for any valuation is to multiply yearly revenues by 2.5. This number will go up or down depending on a few other factors, but it’s almost always where you begin.
But no one will simply take your word for it when it comes to revenue reporting. You need to be able to prove it, and you’ll likely need to be able to do so for at least the last five years. If you don’t have the stats to back up your claims, then you’re going to have a hard time earning a valuation that reflects what your business is really worth.
However, good revenue stats help your business in other ways. Specifically, they help you monitor your cash flow. One of the top reasons businesses fail is improper cash flow management. This can lead to you getting in over your head, or to missing out on opportunities to grow, both of which will cause your business to suffer.
Another key component of determining the value of your business is its future prospects. Where is the business headed? When the arrow is pointing up, your business will be worth more. And who doesn’t want to run a business that’s headed for growth?
One of the ways you secure long-term growth is with marketing. It helps generate leads, build loyalty and maximize customer lifetime value, making your company more profitable. But marketing is hard to quantify. Some of it is rather intangible, such as brand affinity, making it hard to assign a number value to their contribution to the business.
But by keeping track of things such as social media engagement, new lead generation, conversions, brand recognition, etc. you’ll be able to demonstrate the efficacy of your marketing. This will then give a much clearer snapshot as to where the business is headed, helping to boost its value.
And doing this will also make you more successful right here and right now. You’ll have more data on how your different marketing efforts are working together, giving you better insight about where you should focus resources and energy. Marketing stats are incredibly useful for helping you make the right decisions for your business and also for boosting its value.
One of the ways statistics affect the value of your business is that they demonstrate how your company functions. Businesses with optimized and efficient processes are worth more. This is because when someone looks at buying a business, they want to spend money on something they’ll reasonably be able to run.
Keeping good data on your company is not easy. You need to decide what information to collect, how you’ll collect it, who’s going to compile it and also what you’ll do with it once you have it. Successfully compiling data and statistics on your business means you have a pretty well-run operation.
If someone can look at your business and clearly see how and why it makes money, then you’ve succeeded at building data compilation and analysis into your business, something nearly all well-run and valuable companies do.
As you can see, statistics are far more than numbers. They’re a useful insight into how your company runs that will ultimately help determine what your business is worth. Keeping good stats is one crucial way you can help make your business more profitable and valuable, and if you aren’t already it’s a practice you should start doing today.