| Jul 30, 2012
Guest post by Vic Alexander, CPA, ABV, CFF, chief manager, KraftCPAs
1. Start with a sound business plan.
The business plan will evaluate the market for your product or service, competition, capitalization needs, external influences such as government regulation, management and projected financial results based on certain assumptions. This plan will serve as your road map and assist you in obtaining the financing you need for the business.
2. Every business is created to ultimately be sold.
Your CPA should be able to assist you in identifying the things that will add value to your business so that when you eventually sell it, you will get the best possible return on your investment. You and your CPA should keep your exit strategy in mind when selecting the type of entity you will use to operate your business. Selection of entity type is one of the most important decisions that you will make (i.e. sole proprietorship, general partnership, LLC, limited partnership, S-corporation or C-corporation).
3. You can only manage what you measure.
Every business has critical success factors. Identifying your business’s critical success factors leads to the identification of key performance indicators, which can then be used to create a business dashboard for your company. Businesses that identify, measure and manage key performance indicators have a much higher success rate than businesses that don’t.
4. Document your systems and processes.
Documentation of processes will ensure replication of best practices and put you in a position to grow either organically or through acquisition.
5. Good fences make good neighbors.
Invest in agreements. Your partnership, LLC or shareholder agreement is most important. Consider whether you need non-compete agreements and/or employment agreements with partners and other employees of the company. These agreements may help protect the value of the company. Consider whether these agreements need to include exclusive services provisions, confidentiality provisions and non-solicitation of employees.
6. Do not become a slave to your business.
The less dependent the business is on you or a few select employees, the more value it has. It is easier to plan for succession when the business does not have this key-person issue. The best way for you to avoid this problem is to work “on” your business as opposed to working “in” your business. If you constantly work “in” it, you may have a job, but you won’t increase the value of your business.
Vic Alexander is one of five Nashville Area Chamber members answering your business questions in the Chamber's Ask the Expert program. Submit a question here.
KraftCPAs has been a Nashville Area Chamber of Commerce member since 1967.