A recent CFO survey shows that although inflation concerns have decreased some, it continues to rank as a high concern for business owners – as it should.
During one period of time when inflation seemed out of control at 9%, Biz Equity, the company that provides the backbone to my business valuation program, published a white paper discussing the effects of inflation on business valuation. Although inflation does have a tendency to cool down, the long-term effects of a large bump in inflation are significant. We sometimes never return to the pre-high levels.
If you are a business owner, this whitepaper is worth the read. We all know inflation affects our long-term purchasing power and that we need to continually increase income to counteract increasing costs. Inflation also degrades the value of our business. Over time, the effects on valuation are dramatic.
The trick is to ensure that your business outpaces inflation with profit and growth so that you keep building value. For example, for 2022, a successful business would have needed to grow by 10% just to keep pace with inflation rates.
The first step in being more intentional about staying ahead of inflation is to know your numbers. This is a frequent topic with me because it is so important. Your business is your biggest asset and you need to know the facts. I am a huge proponent of a weekly scorecard to track key data and measure how your company performed the previous week compared to last year and to plan. Using a review like this, we can easily see ways to improve in key areas.
The second step is to perform a business valuation report. It is a great way to get an overview of what your business could bring if you wanted to sell it today.
If you are properly prepared, we can complete a valuation in about an hour. The BizEquity platform works great to perform a low-cost, accurate business valuation using strategic technology and a large database of business valuations. They are world’s only patented and the largest provider of business valuations, having valued 33,466,715 private businesses globally.
The frequent self-monitoring I recommend in knowing your numbers helps you improve performance, be proactive, and focus on the key factors that are moving the valuation needle, so these steps actually work in tandem.
Research shows that self-monitoring improves progress. Yes, you can blame external circumstances such as who is in office, what the interest rates are, or how the economy currently stands for the success or failure of your business. But that’s not the truth. Many businesses still survive (or even thrive) when external conditions are less-than-ideal. The value of your business is directly proportional to how well your company works. And how well your company works is directly proportional to the effectiveness of the systems you have in place.
So be courageous and self-monitor frequently. Become comfortable taking a hard look at your performance. Set high standards for yourself and your business. Know your daily/weekly/monthly numbers as well as what your business is worth.
No one may have told you that as a business owner, your role as CFO is the most important (or working closely with a qualified CFO.) But without understanding your numbers and valuation, you don’t understand a major portion of how your business runs and its health for the long term. And as a leader, that’s YOUR responsibility. Your team and the market is depending on it.
Contact me to schedule a valuation or a review of your numbers.