Publications: Articles Authored by Julius J. Brecht

How do I build value in my company? The first step.
By Julius J. Brecht [1]
For The Alaska Journal of Commerce

The First Step

What business owner has not asked, "How do I build value in my company?" This question has been a popular topic in recent times.

You may not say or think it in just these words. However, the business owner is continually challenged by questions of business value, not only in the short run but over the long haul. How am I going to make payroll next month (and also pay myself)? How am I going to achieve my objective of making my company profitable in one year (or by some other deadline that I have set)?

These questions are different facets of the basic challenge to a business owner to increase value in his or her company, not only to pay the bills but also turn a reasonable profit. They are relevant to the seasoned small business owner as well as to the entrepreneur developing a new business plan.

What do we mean by value? It can take the form of "sweat equity," i.e., the personal effort of the owner. It can also take the form of intellectual or other property contributed by the owner to the fledgling company, e.g., a new patent for an idea for an electronic device which allows the user to take advantage of yet another aspect of the internet, or office space in which to develop the idea into a product for sale. It also takes the form of sale of goods or services by a business as a going concern and the goodwill the business builds with its operation in its community and in the marketplace for those goods or services.

Specifically, how can you build value in your business? There are a multitude of possible responses to this question. Some may or may not fully apply in your business environment. However, the following four suggestions are ones that I believe generally apply to all businesses, regardless of size or nature of goods or services provided.

Treat employees, vendors, and customers fairly

You may think you can do "the job" better than those around you. That may work in the short run, but inevitably it is a formula for burnout for you and disaster for your company. As your business grows, you have to seek out and retain competent and trustworthy employees. Fair compensation of them in cash or other forms of equity, e.g., stock options, is a basic underpinning for success of your company. It also makes good sense.

Treating vendors and customers fairly is a primary way of building goodwill for your business. The obverse, i.e., engaging in sharp practices and refusing to listen to, or be persuaded by, vendor or customer complaints, in the long run saps the strength of your company. It also channels your company in a direction of confrontation and argument rather than sticking to your business plan and working with vendors and customers to expand your business.

Adopt a business plan

Success of a business is almost inevitably based upon a well conceived and viable business plan. A business plan may take various forms. However, in essence it is a plan, the terms of which set forth the path for successful building of value in the company. While some may claim that they have not had, and have no need for, a business plan, the far greater majority of successful small businesses each owes its success to a carefully thought-out business plan.

The business plan should be in writing. Consider having someone you trust to make an honest and competent critique of your plan. The plan should be reviewed and revised from time to time to reflect, if not show the way to, adjustments in the direction of a company's business.

Establish or expand internal controls for the operation of your business

You can have the greatest idea and plan for the development, marketing and production of that idea to turn it into a profit for your company, and still not be profitable should your internal controls be lacking or non-existent. Review your books frequently. Make sure there is accountability for different functions within your business, e.g., accounting, sales, marketing, finance, etc.

Have in place a means by which you can test and monitor the operations and cash flow of your company. Avoid situations where too much reliance is placed upon one individual or division to carry out critical functions which involve handling money or other assets of the company without oversight.

In larger operations, an internal audit division of a company or an audit committee of its board of directors may provide the correct mix of testing and oversight needed.

Should you choose to form an internal audit division, establishment of it and its duties should be as approved by the board. Should you choose to form an audit committee, governing of it should be by an audit charter adopted by the board. The members of an audit committee should demonstrate a level of independence from the board in carrying out its duties.

Provide for honest and ethical conduct of business

Consider establishing a Code of Business Conduct and Ethics for your company. Through such a code, you establish a standard of honest and ethical conduct in the operation of your business. The code provides a basis for handling conflicts of interest between personal and professional relationships. It should include a resolve by the company to provided full, fair, accurate, timely and understandable disclosure in reports to shareholders or other passive equity holders of your company. The code may apply to the officers and directors of your company. It may also be extended to cover all employees of your company.

Ultimately, how you choose to fashion these four suggestions for use in your company is your decision. However, each suggestion should be a part of a plan to build value in your company.

The Second Step

Building value in your company is only the first step in a successful business experience. As your second step you should consider, before you commit to your new business venture or to a significant change of direction in a present business venture, another critical question. What is your exit strategy? That is, do you intend to sell your company, sell controlling interest in it or sell its assets? Or, do you view your venture as a life-long journey? The successful entrepreneur plans not only how to build his or her business but also how his or her relationship with it is to end.

We all take on new ventures with the best of intentions. Starting a business or redirecting a present business is no exception. The success of a business venture includes, as a basic ingredient, building its value. That goal can be accomplished with hard work by the entrepreneur. However, to increase the likelihood of its accomplishment, building a business' value further requires careful attention to basic relationships of fairness and ethical treatment established between the business and its employees, vendors and customers. It also makes good sense!

[1] Mr. Brecht is an attorney in private practice and shareholder with the law firm of Wohlforth, Johnson, Brecht, Cartledge & Brooking, A Professional Corporation, with offices in Anchorage, Alaska. Mr. Brecht's concentration of practice is in state and federal securities law and corporate and finance law. The content of this article was not prepared as, and must not be construed as, legal or investment advice to anyone. He may be reached at .

< Back to Articles Authored by Julius J. Brecht