Profit Resolutions

How to Increase the Value of Your Business

Part I: Building a Management Team

The largest investment in many entrepreneur’s retirement portfolios is the value of their business. That’s a good news, bad news scenario.

It’s good news because the entrepreneur can control and influence their business much more effectively than they can control the stock market or interest rates. It’s bad news because many entrepreneurs are focused on short-term operations and serving their customers without a longer-term perspective of creating and protecting business wealth.

There are three major factors that impact the value of your business: management, cash flow and business strategy. We’ll discuss the first factor, management, today.

Are you ready? The first step to strengthen your management team is to…fire yourself.

I’ve said it before, and I’ll say it again, but the fastest way to increase the value of your business is to remove yourself from most if not all of the boxes on your organizational chart. I realize this will take time, and you have time to make it happen the way you want. You can still perform any role that you want in your company, and you will need to be the president for a few more years, or not. The main point is that we need to prepare your company for your eventual exit.

If you are only performing the “President” role and spend time leading your company and mentoring your management team, then you are in the right place. Congratulations.

If you are wearing multiple management hats, here is how you develop your team. You accomplish this by writing down the positions and functions – not individual’s names – on your organizational chart. Then, update the chart for what it needs to look like in five years. If your business is growing at 14% per year, then you will be twice as big in five years!

Now, create a separate list of all the positions, add names to the current positions, and determine if the current person will meet your long-term needs with training, mentoring, development and continuing education. If they have the potential, then make sure you are also developing their second-in-command so that you have management depth.

If they don’t have long-term potential, they may have a valuable role to play but now you know that you will have to bring in or develop a new manager in the future.

Here are best practices for developing your management team:

1. Provide a breadth of experiences so they understand how your entire business functions.

2. Expose them to all the departments so they can work as a team and appreciate the complexity of serving a customer.

3. Introduce them to customers so they understand how the customer uses your product and service.

4. Spend time with front line people so they appreciate what happens in order to sell and ship your products.

5. Hold them accountable for business results and reward performance.

6. Hold them accountable for developing their second-in-command and the future talent pipeline.