How_To_Boost_The_Value_Of_Your_Business by marcusjames

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									Title:
How To Boost The Value Of Your Business

Word Count:
811

Summary:
All too often banks, potential investors, and creditors will determine a
company's value based on financial statements. This is a mistake.
Financials don't come close to telling the true story. Sure, they present
the tangible value. But what about the intangible value? Company
valuation is emotional—a company is worth what an acquirer will pay, what
the market will pay, what the interested parties perceive. We see
evidence of this frequently when companies with a trickle of r...


Keywords:
business, startup funding, business loans, equity investment, venture
capital, debt-based financing


Article Body:
All too often banks, potential investors, and creditors will determine a
company's value based on financial statements. This is a mistake.
Financials don't come close to telling the true story. Sure, they present
the tangible value. But what about the intangible value? Company
valuation is emotional—a company is worth what an acquirer will pay, what
the market will pay, what the interested parties perceive. We see
evidence of this frequently when companies with a trickle of revenue are
acquired for gushing millions or even billions of dollars.

Maybe you aren't planning on raising financing, securing a credit line,
being acquired, or one day going public. You still need to continually
boost the value of your company. A higher-value company has more options.
It gets the right partners, preferential terms, and often a more glorious
future. There's an art to value-boosting, and I am going to tell you how
to do it. First, know the facts:

• Company valuation is emotional.

• Intangibles often matter more than tangibles.

• You can't build value if your business isn't enticing.

• You should always be selling: to financiers, customers, strategic
partners, staff, and strangers.

I've used some or all of the following seven value-boosters to quintuple
the value of my clients' companies and my own. These value-boosters have
also worked for companies such as Google (GOOG), Microsoft (MSFT),
YouTube, and many, many more.

1. A killer team and a killer business plan.
2. A hot board of directors and/or advisory board.

3. Specific strategic alliances. An LOI (Letter of Intent) with a partner
ain't gonna cut it. You need a binding contract spelling out exactly what
the terms of your deal are. Clarify how many widgets they will
buy/distribute/co-market, the time period, as well as what happens if
they default on the agreement.

4. New sales channels. Distributors, value-added resellers, outside sales
forces, affiliates, joint-venture partners—all boost the value of your
company. Of course, you'll track the performance of your sales channels.
Use the affiliate tools in your online shopping cart to track the
performance of your online sale channels, and use your accounting system
or sales force management software to track all others.

5. Product line extension. Let's assume you sell a supercool widget.
What's next? Son of Widget? Platinum Widget? Widget Extraordinaire? Map
out your future product lines so financiers, partners, and staff can see
where you are headed and how you plan to get there.

6. Intellectual-property (IP) portfolio. Protect your corporate jewels! A
patent portfolio can be worth gold. A friend of mine sold his company for
$425 million (with about $30 million in trailing revenue) because he had
locked in so many patents. That's what the acquirer bought. They didn't
give a hoot about the business.

7. Compelling prototype of product. This is key when you're in the zero
or near-zero revenue range, as you'll see below. People need to
see/touch/feel what the product will be like. Then they can envision your
fabulous future.

Consider this example. A professional services firm with an initial value
of $2 million hired me to help boost its value. But the trouble with
services firms is they are often valued at only revenue times one. Ick.
So we beefed up the board and advisers (adding $1 million in value),
helped nail down specific strategic alliances ($3 million), mapped out a
line of "productized" services ($2 million), and developed new sales
channels ($2 million). About six intense months later, the firm sought
financing with a respectable pre-money valuation of $10 million. It
closed the financing in three months.

Then there is the example of the Internet promotion company I started
with no revenue. Before seeking financing, my team and I had to answer
the question: How do you make an idea into a hot commodity? The solution
consisted of pulling in a rocking team and coming up with a hot business
plan (adding $1 million in value), developing a compelling product
prototype ($1 million), locking in killer alliances ($1 million), and
building an IP portfolio ($2 million). We took its value to $5 million in
four intense, somewhat sleep-deprived months. Then we raised $2.5 million
in financing with a pre-money value of $5 million, and a post-money value
of $7.5 million. The $2.5 million invested bought one-third of the
company.
Value is about potential. Potential today, potential tomorrow. The main
reason you keep building value in your company, in all the tangible and
intangible ways (and as I've shown you, the "intangible" ways often do
have dollar values attached to them!), is because a high-value company
gets the financing it wants on the terms it wants. It also gets multiple
acquisition offers at fabulous terms. The high-value company gets the
alliances, the staff, and the opportunities it wants, too.

Remember, you are selling the future as you are selling the present. The
present must look promising for the future to be potentially glorious.
What are you doing to boost the value of your company today?

								
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