Defining a business' value vessel it's not just about collecting income and deducting expenses. While an important part, these hard numbers are only half of the equation for calculating a company's value. To find the true value, we also look at factors such as the level of owner involvement, company goals and growth opportunities. When we use the complete equation, we get a comprehensive picture of a business and can better understand its past, present and future history.

Calculations can vary by company, but in a healthy company, there is a 50/50 split between the quantitative (financial) and qualitative (non-financial) sides of performance. If the business is not profitable, it is more important to focus on the quantitative side and fix the numbers first. Many owners don't want to hear this, but if they're not hitting their numbers, it could mean the business isn't working. They need to fix the quantitative issues before moving on to the qualitative side.

Connected: What is a balance sheet and why does your business need one?

For healthy companies that want to maximize their value, quality indicators can be grouped into three main categories.

Quality assessment

1. Purposes of the owner

We've found significant research that shows that if an owner has defined goals and plans for the future that are consistent with the market's expectations of their company's value, they will have a much stronger exit. What is the owner's defined purpose about going out of business – to get as much money as possible, take care of their employees and provide a legacy? Then you need to get to the “why” behind the goals and create an action plan. It almost doesn't matter what the answers to the questions are; having achievable goals and a strategy for achieving them can grow the company value vessel because it keeps the owner focused on improving other areas of the business.

2. The role of the owner

The degree of owner involvement is a critical indicator, but perhaps not for the reason you think. The more involved the owner is in day-to-day operations, the more central they are to the business less the business will pay off down the road. If the owner is the linchpin that holds everything together, what will happen to the company when they leave? Operations evaluation is more about system and team structure. Look at the organizational chart and who is on it – are they good employees or bad employees? Review company processes and procedures and how new team members are trained and onboarded. The owner sets the vision, but it is the team that increases the value of the company by realizing the vision.

3. Growth opportunities

No one wants to buy a business and keep it the way it is. They want to see the potential for future growth, especially the potential for a return on their investment as a buyer. Whether it's a simple price increase or new locations, anyone buying the business will ask growth opportunities. Indicators such as product or service diversification in both the company and the industry it is in give a good sense of whether the company is moving forward or lagging behind (and at risk of falling behind). The more potential you can show, the more upside there will be for the next owner – adding the most value.

Connected: 8 Factors that determine the financial health of a business

The cycle of success

When the quality side of the equation works, it all ties together. The owner knows the goals, which align with where the company is going, and is leading the organization, but works on his own outside of day-to-day operations; the business grows and creates more growth opportunities for the future owner. Coupled with profitable numbers, it's a cycle that builds a high-quality business.

For the best landlords, it takes a minimum of three to five years for that cycle to work for you and to have reliable indicators of your value. It's even better to make it part of a 10-year strategy.

At Exit Factor we have 62 different qualitative indicators that we use to determine the company valuable. We don't use all of them, or even close to it, for every business; it usually involves changing three to five of the 62 indicators. Figure out which of these 62 are essential to your company and you'll have a truly forward-looking strategy for profitable growth.