The best way to predict the future, is to create it.” – Peter Drucker

We’ve been talking about Four Keys to building wealth and abundance in your business. These are principles that must be respected and followed in order to create the conditions whereby you can generate the kinds of income that truly build wealth.

With this entry, I present the most tangible component to our process.

Key No. 4:  You MUST Build Asset Value

There are two methods to actually generate wealth from your business:

  1. Generating and investing monthly profits. This is a personal investment strategy.
  2. Selling your business for a lump sum.

This Key is All About No. 2

When it is time to exit your business, a potential buyer will certainly be analyzing the cash flow of your business (how much profit it is producing each year).  In a normal business purchase transaction, a buyer will pay a price that reflects that profit, and sometimes a multiple of that profit.

For example, buyers may pay three times the profit recorded in the past year, or over the past three years averaged. This is generally because they feel that those profits can be duplicated/repeated in subsequent years.

In the home-improvement business, however, there is much less guarantee that last year’s profits will be this year’s profits. That is because our customers typically buy ONCE. Yes, we may have repeats, or we finish the rest of the windows in a home, or go back to do a complimentary product, but the vast majority of our business comes from one-time buyers.

This means that for a buyer to recoup their investment (which is what goes in your pocket when they buy the business), there is more RISK.  That risk drives the price down.

So how do we combat this? In fact, how do we RAISE the price that a buyer might pay?

ANSWER: Build the Value of Your Brand.

You see, even though repeat business is not guaranteed (to a reasonable degree), your buyer will see the value in your REPUTATION and well-known BRAND.  That is IF you’ve done a good job establishing it (see Key No. 3).

When you have a well-respected brand in the community, the buyer feels more comfortable that the LEADS will come in — and sales will be at hand.  (as long as you have a good selling system, see Key No. 2).

When the buyer feels more comfortable about their investment, you will be able to command a HIGHER PRICE for your business.

Running a financially disciplined business that produces monthly profits that can be invested, along with building a respected brand reputation — THAT is how you build wealth.

Remember the Four Keys:

  1. You MUST have financial discipline.
  2. You MUST have systems and routines.
  3. You MUST deliver value.
  4. You MUST build asset value.

Here’s where we get a bit philosophical.

Following these Four  Keys requires work.  It requires discipline and planning and a vigilant effort to reinforce your vision to all those involved.

But when you follow them, you are creating the conditions whereby you will inevitably find success. Not just in the result or end game, but in the process itself. And in that process, you will find the success that is defined by what is most important to YOU.

And that, my friends, is creating abundance.

Ed Kalaher is the president and CEO of Window Depot USA in Canfield, Ohio.

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