The primary aim of most business owners is to create value or wealth. Yet many small business owners are not able to pay themselves what they are really worth. As a result of the recent economic conditions, many business owners will not be able to use the value of their business to retire or move onto their next project. The March 2009 edition of the Maxell Consulting value adding newsletter shows how to calculate whether businessmen are creating value in their business or destroying value.
A recent Maxell Consulting client knew they were making a reasonable profit, but could not understand why their financial position did not improve. The answer was in the cost of the capital structure they had in place. But addressing the problem involved looking at how they used their assets to generate profits more effectively.
Following are the important issues that businessmen consider:
- Is there a possibility to consolidate the business and reduce the capital investment and make a better return?
- How can the businessmen position the business to grow once demand and the economy return to normal levels?
- How can the businessmen create value in depressed market conditions?
These questions are not difficult to answer once known what to look for, and the answers can often form the basis of a solid plan to get back on track. Knowledge can create a lot of power when used effectively.