Is your business a job or an investment? When you exit your business, it is likely that a successor will be purchasing your business. That buyer will be interested in knowing about the equity that you have built, not about the income you have achieved.
Income can vary according to the personal needs of the owner. Equity can be expanded and value can be driven into your business once your focus moves to an equity driven model.
Equity is a balance sheet term that is your assets less your liabilities. This equation reveals the owner’s equity. It’s the manner in which you make operational decisions to increase the value of your business.
You’ll need to ask yourself this question: Who will own and run my business after me? You will need to have some ideas as to what your exit options are and which one is optimal for your situation.
Once you decide who will be taking over your business, you will need to start to build on the equity in your business because you will be treating it more like an investment and less of a job. You will be creating transferable value. You will become an overseer of the activities, not the creator of the activities. This means your presence will no longer be critical to the proper running of your business, and the future owner will see that your company can run without you.
Your transferable value is increased because all business valuation is a prophecy of future cash flows. You will confidently state that your future cash flows are more secure because your management team has decision-making authority and you have protected the ongoing streams of income and cash flow against your own short-comings. Now the transferable value of your business increases because the successor has a higher certainty as to the ability to achieve future cash flows in your absence.
Are you creating income or equity in your business?
Are you on the path to increasing transferable value within your business?
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