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Who Cares About Costs? Here's How to Structure Your Business to Last

Who Cares About Costs? Here's How to Structure Your Business to Last
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Q: How do I build a business that will last for decades?

A: With very few exceptions, the answer to this question is the same for any small business, whether it's looking to cash out in 50 months or 50 years. And it's not really about costs; it's about the structure of the business. Costs will flow naturally and efficiently out of a sound structure.

Many public companies operate shortsightedly, pumping up their quarterly numbers to boost their stock prices, with sometimes disastrous long-term results. A business with an owner who measures growth and progress in years, not months, is a much easier ship to steer.

Follow this basic checklist to increase your chances of growing for years to come--assuming, of course, that people want the product you're selling.

Establish strong financial controls. Doing so produces solid information for decision-making and reduces the risk of theft and fraud. Put simply, until you know where every penny's going, your business isn't on sound footing.

Minimize distractions. As a CFO, I've seen firsthand how an owner, freed from daily worries over cash flow, can successfully concentrate on the future--building relationships, developing new products and services and overseeing other big-picture issues. Hire trustworthy and smart people to handle the details. They're worth it.

Increase sales. Obvious? Yes, but never forget that a larger company is inherently less risky than a smaller one.

Diversify products and services. Spreading sales over more customers, product lines or markets reduces risk and enhances opportunities for growth.

Streamline, codify and document processes. The hallmark of strong companies is the quality, consistency and documentation of the way they operate. (This is the first step wannabe franchisors take to determine if their ideas can be replicated.) I often tell owners that if they want to be a bigger company eventually, act like one now.

Improve efficiencies. Since most businesses are valued by a multiple of their earnings, every dollar of improvement here will result in more dollars of value, whether it's four years from now or 40.

Protect your intellectual property. Make sure you have appropriate rights for your trademarks, names, designs, technologies, etc. Spending a few thousand dollars on an IP attorney now can save millions--and headaches--later.

Maintain and improve property and equipment. Maintain access to money that can be used to take advantage of technological improvements, expand operations and keep everything in running order.

Reduce employee turnover. Bear in mind that shelling out more money doesn't necessarily create a loyal and productive work force. Respect, fair management and inclusion in decision-making go a long way.

Avoid competing on price. A focus on undercutting the competition can start a vicious cycle that destroys your profit margins. You want customers to choose you for your superior products and services, not because you're the cheapest.

Joe Worth, Vice president of operations and partner at B2B CFO, has been a CFO for several public and privately held companies.

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This article was originally published in the August 2013 print edition of Entrepreneur with the headline: The Sustainability Checklist.

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