Why Your Business Needs to Look Financially Strong

In our previous post, we broke down why it's important not to go wild with your tax write-offs in order to make your company stronger.

So what does stronger mean, exactly?

I always think about how I can make my company look stronger to the bank or potential buyers.

I also want my company to look strong as an asset in my portfolio for eventual retirement. This means showing strong income and steady overall growth in income. When your company looks stronger in the bank's eyes, you'll also have more freedom to secure financing for business expenses as well as your personal life.

If you hope to sell your business one day, it's also important to look strong. You want potential buyers to be able to look at your profits and losses and see that the company is truly worth buying.

Looking strong as a company doesn't just apply to selling your business, however. For many business owners, selling is the furthest thing from their minds. You might also want to transition your business to a family member or beneficiary one day. I encourage these owners to think of their company like an insurance policy.

If something happened to you and you had to sell your business for your family, what would they get out of it? What would be left for them? This is a difficult but important big-picture question to consider as a business owner. You own an asset that you're putting your life into!

Whether you're looking to sell, trying to grow or even pass the business on one day, the key is the same: Being able to show on paper that your business is strong.

One of my favorite examples is a client of mine who bought a small cleaning company and steadily grew the business. He invested his own time and dollars and even bought out other clients to build his cleaning company over five years. After five years, he sold the company for three times what he paid for it.

How did he pull this off? He treated his company like a stock: buying low and selling high. He could do that because he took all the right steps over those five years to know his company's value and show its strength.

Finally, remember that being able to show your company's strength makes it much easier to take pride in what you do. Closely watching your company's growth goes a long way in validating your decisions as an owner. When you can see the effort you put into your company every day on paper, it's like the best bonus you can get.

How to evaluate strength varies from company to company. If you'd like talk to about how you can evaluate your own business and learn how to keep making it stronger, I'd love to meet with you.