Financial performance

A lot of this is obvious.  Not necessarily easy, but obvious.  You want to maximize top line growth while watching bottom line profit.  Managing the profit is doable when you have the organization and accountability to do so.  My guess is that right now, at this very moment, just off the top of your head, you know of two or three ways to cut costs.  But it’s too easy for us to address it later, not now.

Because a lot of this is obvious, I’ll mention two things that are important but maybe not as well known.  There is such a thing called a “small company discount” which means that buyers will pay a much smaller multiple of EBITDA, or cash flow, if your earnings are low.  Conversely, growing your business means your value jumps not just because of improved cash flow, but also because of the improved multiple you’d receive.

If your company is earning $1 million, and if you sell at 4X EBITDA, that’s a $4 million sale price.  Building those earnings up to $3 million could increase your multiple from 4X to 6X EBIDTA – that’s an additional $2 of sale price for every dollar of earnings. Or, more meaningfully, that’s a difference of millions of dollars for you. If you didn’t follow that math, don’t worry, there won’t be a quiz.  The point is that people will pay you a higher multiple for a larger company.

Also, the more formalized your bookkeeping the more defendable your value.  The more professional your accounting, the more reliable your data, the less risky you are, and the more someone will pay you.