Profit is not value: why a profitable business can still be worth less

Most owners measure how their business is doing by looking at profit. It is a useful number, but it is not the same as what the business is worth.

Why profit and value part ways

A business that makes a healthy profit can still be worth little if that profit depends heavily on its owner. A buyer is not only buying today's profit. They are buying the chance that it continues without you. When the owner holds the key relationships, knowledge and decisions, a buyer sees risk and discounts the price.

Value is profit and risk together

Value comes from the balance between profit and risk. Raising profit helps. Lowering the risk a buyer sees helps too, and often matters just as much.

Find out while there is still time to act

Many owners learn what their business is worth when a buyer makes an offer. By then it is too late to fix the weak spots. Tracking your value as your books reconcile shows which drivers are moving it and which fixes are worth the most.

• Connect your accounting software once
• See your current value and the factors behind it
• Work through a ranked list of improvements