By Kathleen WallaceKurt Kofford has a baseball cap with the word “in” on one side and “on” on the other.The words remind him that it’s easy to get caught up in the daily details of running a business – the “in” side of the cap – and forget to work “on” the business.”If you’ve always got the ‘in’ side of your cap on and that’s all you’re doing, looking at the details; you’re not stepping back and creating a strategy to move forward and increase the value of your business,” Kofford said.Kofford is co-owner of BiggsKofford, a Colorado Springs company offering accountant and business consulting services.In November, he spoke to local business owners at a workshop sponsored by the Better Business Bureau of Southern Colorado.To define a strategy for increasing the value of a business, Kofford advised business owners to identify and monitor their business’s key performance indicators.”What you can’t measure, you can’t manage,” he said. “When something is measured, performance improves; and when it’s reported, the rate of improvement accelerates.”The best key performance indicators are leading indicators. Those are ones that give us some prediction about what is likely to happen in the future.”As a real-world example, Kofford talked about a company that depends on trucks to provide a service.”We realized trucks were their biggest expense driver. It requires a physical truck, gas, maintenance and driver, so the more customers one truck could handle, the better,” he said.”We started to measure that and each year it’s gotten a little better because they’ve identified it, they’re measuring it and they’re monitoring it. It’s a key performance indicator in their business, and their profitability has been positively affected.”Another component of working “on” a business is identifying hidden problems, like the auto parts manufacturer whose margins kept dropping.After ranking all the parts that were being made, the company discovered there was $250,000 worth of a negative gross margin they didn’t realize was there.”All they had to do to increase their profitability by $250,000 was not make those parts,” Kofford said.There are reasons to do something at a loss, but now the company limits that kind of loss to $15,000, and their profitability is substantially improved, he said.Kofford said business owners should “begin with the end in mind.”Often, the “end” is a secure retirement, which depends on building the business’ value and having a plan for exiting the business – whether it’s selling the business to a competitor or to the company’s employees.Business owners should identify specific things that create value for a business.”When we get specific, when we have a clear picture of where we want to go, when we get very specific about getting there; that makes a difference in terms of a very healthy, thriving business,” he said.Customer concentration – being too dependent on a few customers – decreases a company’s value. Kofford cited a company where 67 percent of sales came from three clients.Although the company was profitable, that dependency would be a red flag to a future buyer, he said.The company decided to diversify its customer base.”They established an action plan to do that,” Kofford said. “They’ve moved the needle, and their business is now worth more because they identified what was going to be valuable to their future buyer.”Many business owners are often tempted to lower prices to increase volume.”I would encourage you to be very careful about … pricing because it’s one of those things that has a direct impact [on profitability],” he said.Kofford talked about a company that had $438,500 in net income. Its owners wondered if they should offer a 1 percent discount for customers who bought in volume.The owners decided not to offer the discount when they realized it would cut net income by 22 percent.Instead, the owners increased pricing by 1 percent.They lost a few customers but created an invigorated sales force that goes out and gets new customers, he said.”So many of us get caught up in working in our businesses, doing the technical work that needs to be done, but I would challenge you to work on your business,” Kofford said. “Your business is the most important investment you have.”
