One Hidden Thing That Drives Your Company’s Value
You already know that your company’s revenue and profits play a big role in how much your business is worth. Do you also know the role cash flow plays in your valuation?
Cash vs. Profits
A Buyer must write two checks at closing; one to you as the owner, and a second to the company to fund its working capital – the cash your company needs for its immediate obligations like payroll, and rent. The problem is that both checks are written from the same checking account.
The greater the working capital need, the lower the amount the Buyer is willing to pay for the business. Conversely, the less the acquirer has to inject into the business to fund its working capital, the more money it has available to pay you for your company.
How To Improve Your Cash Flow
There are many ways to improve your cash flow – and therefore, the value of your business. They all start with accurate and timely cash flow reports.
There are several big bucket ways you can improve your cash flow. You can optimize your collection and pricing strategies, manage your expenses and make smart hiring and firing decisions. You can accept only “good money” clients, and you can adopt smart and timely billing policies that minimize the amount of time between providing services and receiving payment. By making better, more strategic decisions about how you run your business, you can begin to improve your cash flow.
Profits are an important factor in your company’s value but so too is the cash your company generates. Businesses that generate a great deal of cash are much more valuable than those that suck up cash. We call this phenomenon The Valuation Teeter Totter and it is one of the eight key drivers of the value of your company. To find out how your business is performing relative to the eight drivers of value click on the link below. You will be asked to invest 13 minutes of your time to complete a Confidential questionnaire. When you click on Submit you will immediately receive your Value Builder Score.
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