Understand your financial trends
Early in a new year is a good time to look back at the year just ending and do some trend analysis. Looking at your financial trends can help tell a story about whether your business is building worth or losing worth. And if it's building worth, congratulations and make sure you know why it increased so you can protect whatever it is and continue to build upon it. But if the trends tell you you're losing worth, now is the time to stem it. When the day comes that you will want to exit your business and perhaps sell to a third party, guess what they are going to do? They are going to take your financials and look for trends. Knowing this is going to happen some day, you should start now doing the same thing for yourself.
What trends am I referencing? Revenue, Gross Margin, Sales-General & Administrative costs, Net Margins, R&D investments are good starting points. Look at each of these and graph them for at least the last 3 years, 5 is even better. When you do this, step back and ask yourself what are the trends telling you. Ask yourself, if I had to share these today with a potential acquirer, what story would it be telling them? Would they see a rapidly growing and evolving company, a lumpy and inconsistent performing one or even one that is decelerating in performance or even deteriorating? This story will tell them what valuation to place on your business if they were to make you a purchase offer. Know your trends and know the story now for your own business so if you don't like the story it's telling, you still have time to address it. Don't lose valuable time now that you could be using to build the value or worth of your business. Use time as your friend!
