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When do you create value in a business - part 1?

Most business owners are focused on running the business to generate a profit and pay themselves a suitable salary or wage.   Growth in the business usually comes from increasing sales and expanding the business, and hopefully this results in increased profits.   As a result of this "profit focused approach" most business owners assume that if they are making profits, they are creating value. 

But that is not always the case - sometimes you can be making profits, but not enough to be creating value in the business.  In this two-part series we outline the key variables that ensures a business is increasing its value.  Part one looks at the traditional asset-based business, whilst the second article will investigate when a service-based business creates value.

Asset Based Businesses
Businesses that have significant tangible assets as part of its core functions must be able to generate a profit that justifies the investment in the assets.  This category includes any manufacturing business, service-based business that utilises assets(such as transport, warehousing, engineering workshop), retail businesses and others that must invest in tangible assets to operate.

These businesses are creating value when:
  • Return on Invested Capital is greater than the Weighted Average Cost of Capital
The Return in Invested Capital is calculated as the Net Operating Profits After Tax divided by the total invested capital.

This calculation may vary from one year to the next, however in the long run the current value of all profits made that exceed the cost of capital invested in the business should represent the current value of the business.

Naturally a buyer will have a different perspective - they will be more interested in the future profits, and whether these will exceed the BUYER'S cost of capital.  But that is another article.

So are you creating value in your business at the moment? 

Is your Return on Invested Capital greater than your Cost of Capital?  The best way to find out the answers to these questions is to ask us, or undertake our Your Value Now process.  In many cases a simple 1 hour phone call will give you the answers you are after.

Follow this link to find out more about our Your Value Now process.

Watchouts for the festive season - audio interview with Brian Williamson

There are many celebrations in the busy lead-up to the Christmas period - do you know your legal responsibilities? Brian Williamson of Workplace Law discusses the things you need to be aware of as an employer.

In this interview with Business Essentials, Brian outlines the important implications of alcohol, injury, office affairs and other traps employers need to consider at this time of the year.

Most importantly, he explains how to reduce the risk of your business being scammed.

To listen to the full interview click here

myBRC Complimentary Article - Break free from your business operations

Most business owners know that they spend too much time immersed in their business, and would prefer to be working on their business, creating greater wealth and success.  But business owners often fail to recognise some strategic actions they must take to break free from the shackles of "doing" and engage in the acts of "creating and managing".

This month's complimentary myBRC article is by Jenny Stillwell from the BOSSMENTOR Group.  She gives five great ways that business owners can break free of the shackles of working in the business and focus working on the business.

To access the full article follow this link to our Free Info section and click on the link to the myBRC website.

Five ways of creating demand for your business and increasing its value

One of the latest articles in our library looks at how competition for the Cadbury business has increased its value - and what lessons small business owners can learn from this strategy. 

We list five different ways a small business owner can create demand and competition for the business and as a result boost its value.

To read the complete article follow this link.

If you want to discuss how to create competition for your business or look at your exit strategy options, contact us for a free confidential discussion over the phone.

What are your Key Challenges for 2010?

Many business owners will have re-evaluated their goals for 2010 after spending time relaxing and unwinding from the stresses of a busy 2009.

Before you lock in your New Year resolutions, think about the real purpose of your business and ask yourself four key questions for 2010.

Find out what our four key challenges are for your business by following this link to the full article.

Newsletters For 2010

Our newsletters will be covering a range of topics this year, including:
  • When do you create value - Part 2?
  • What is succession planning all about?
  • How effective business networking can significantly increase your business value.
  • The industries positioned for huge growth in 2010 and beyond.
  • How can SMEs use acquisition to create value?
  • Getting the financing mix right.
What else would you like to know about?  What questions have you had about your business and its value?

We want to provide you with information that helps you - so let us know by sending us an email or by going to our Contact Us page and filling out the enquiry form.

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