Business owners frequently sell their business for ‘health reasons.’ The number one health reason is that they are sick of their own business. The business should provide wealth and freedom for the owners.

The key areas to maximize wealth in small and mid-sized businesses are:

1. Cash flow – is the business generating surplus cash? Cash flow comes from margin, velocity and volume.

2. Management team – has the owner transferred power (to hire and fire, to spend money) to a management team and are they held accountable for results? Does the team have a formal plan and budget and do they operate the business in a professional manner?

3. Financial management – does the business increase its retained earnings and use this to borrow wisely and grow more quickly? Is working capital increasing or decreasing? Is the financial structure optimized for growth or transition or whatever the owner’s objectives are? Tax minimization reduces the equity retained in a business, reduces its borrowing potential and immediately reduces the value of the business.

4. Processes – are the policies and procedures documented, improved, used for training and used to maximize production? Is capacity increasing? Are speed and quality improving?

5. Freedom for the owner – consistent with Alan Weiss’s definition of ‘wealth as discretionary time,’ does the business provide freedom for the owner. Does the business operate independently from the owner? If the owner has to be there all of the time, they may not have a business, they may have a job. It’s OK to have a job but the business will be more valuable and easier to transition or sell if the owner has freedom from the business.

You can maximize the profitability and value of your business in order to increase your personal wealth and freedom.

Copyright 2012. Phil Symchych. All rights reserved.