Does your business exist to fund your lifestyle?
Small businesses often operate as if their sole purpose is to fund the owner’s lifestyle, but this could be lowering the overall value of your business. Here’s why: The most valuable companies are run with financial rigor. If your only goal is to fund your lifestyle, there is a good chance that you aren’t focused on building a valuable business through good record-keeping.
Even if you are years from wanting to sell, taking steps to formalize your operations now will help you build a valuable business that thrives without you. Ultimately, formal operations allow you to predict the future of your business. This will help you when it does come time to sell, because you’ll fetch more for what you’ve built.
Acquirers always pay the most for companies when they are less risky, and good record-keeping shows your risk in black and white. Clean books will give buyers the confidence to pay top dollar for your company! Want to see how this principle could add value to your business? Take a look at how a local business did just that…
From Mom & Pop Shop To eCommerce
Jay Steinfeld is a great example of how to run a business like a public company. Steinfeld studied Accounting at the University of Texas and joined KPMG after college. His wife owned a small retail store selling blinds and window treatments. The store was successful, but by 1994, Steinfeld had noticed a little Seattle-based outfit that was trying to hawk books online. This company with the peculiar name “Amazon.com” started to succeed in selling books online, and as a result Steinfeld wondered if he could get consumers to buy blinds online.
Soon after, Blinds.com was born.
Unlike many of the first-generation online companies that were run with little financial controls, Steinfeld grew Blinds.com like an accountant. He was determined to run his business with the same rigor as a publicly listed company. To accomplish this, he built an experienced management team and took the unusual step of assembling an outside board of directors. This step was out of the ordinary because Blinds.com was private, and Steinfeld owned all of the stock.
Part of his system to run Blinds.com like a public company included meetings and presentations. The board met quarterly, and each of Steinfeld’s senior managers were asked to prepare and deliver formal presentations to his board. Steinfeld also hired a big four firm to complete a full audit of his financials each year. Even though all he needed to satisfy Uncle Sam was a simple tax return, he chose to take extra steps in building a business that was valuable.
Valuable Business = Happy (and Lucrative) Exit
By 2014, Blinds.com had grown to 175 employees and, at more than $100 million in revenue, was the largest online retailer of blinds in America. Home Depot had close to $90 billion in sales at the time, but Blinds.com was outperforming them in its tiny niche. This performance – coupled with their fastidious bookkeeping – made Blinds.com absolutely irresistible to Home Depot. As a result of Steinfeld’s attention to growing his business, on January 23, 2014, Home Depot made a bid and accquired Blinds.com.
Running your business like it’s public will make it more predictable as you grow. Ultimately, this will also make your business a whole lot more attractive when you’re ready to sell.
If you’re interested in growing the value of your business and assessing how it stacks up today, check out our free Freedom Point eBook!