Forums: Discussions for entrepreneurs and small business.

We don`t ordinarily hear this term, "business value," in home-based or small startup businesses. It`s more often a corporate jargon term, talked about and discussed in large enterprises. Regardless of it being jargon, though, it does have a clear meaning.

So what do you think the term means? If you hear it in a sentence, it would be something like "how does this add business value?"

It`s not the same as "added value." Any thoughts? How does business value apply to the entrepreneurial venture? How would you use the term and concept on a daily basis?

Okay, I`ll go ahead and close out this topic with a description. The "business" is the entity that exchanges goods or services for money (profit and revenue). The business is the whole point of all this---coming up with an idea, organizing it, marketing, manufacturing, and all that`s involved.

Any business can and often does use and require support systems of all kinds. Computers, for example, support the business process. When we use a hosting server and back-end database, we`re using hardware and software in order to run the business. When we use a merchant account, moving money around the world through transactions, that`s a supporting system.

The problem is that many people forget that support systems mean absolutely nothing without the pre-existing business. A computer, in and of itself, is just a lump of plastic and metal. It may be fun to use for email, or maybe storing pictures and lists, but it isn`t a business all by itself.

"Business Value" is a determination of how "something" helps a business to exist, grow, and develop. How does it actively "get more money," more customers, more business.

Many web sites, for example, offer no business value at all. They look wonderful or horrible, and someone spent a whole lot of money to create the site, but it still has no "business value." The site doesn`t work to get orders, get money, or "get" anything---it just sits.

Likewise, people---particularly entrepreneurs---get so caught up in the details of support systems, they tend to believe the support system IS the business! We ask, "what`s the business value," in order to determine if we`re wasting time and money.

You can learn all sorts of web coding, templates, and whiz-bang technology, spending days, weeks, or months, just to get a web site up and running. What`s the business value? To determine that, we partly have to include our own time and what that`s worth. What`s the business value of your *time?*

If you pay yourself minimum wage, somewhere around $8/hour, and then spend 3 months figuring out how to make your own web site, how much did that cost? (40 x 12 x $8 = $3,840). How many items would you have to sell with that web site in order to equal close to $4,000?

The business value is how ANYthing furthers the growth and expansion of the business. It isn`t whether or not you can depreciate the thing over time for tax purposes. It isn`t about whether you have the latest, greatest, or most powerful thing. It isn`t about whether you got a real deal on something. It ONLY is about how that thing or service will grow and expand the business.

Business value is an investment in growth. Paying for support is a cost, part of doing business. Your car gets you to and from the post office, and although you need the car to run the business, that isn`t a business value. If you put a company advertisement on the car, THEN it has a business value---it`s actively going out and getting more customers.

Each action, item, and event that takes place should have its own business value. Using the above web site example, the business value of your time and effort comes to $4,000 (at minimum wage). So not only do you have to sell items directly from that web site, but the $4,000 in *profits* is assigned only to breaking even for the development itself---not the running of the site, monthly or yearly fees, support costs, and so forth---ONLY the development.

Even there, all you`ve done is broken even. The true business value begins AFTER you`ve paid the $4,000. At that point, the time spend to develop the site should earn profits.

Without a clear understanding of the business value of whatever you`re doing, how could you know if it hinders or helps the business? That`s what business value is about.

Indeed, what does it ("business value") mean? Well, a simple meaning is that it's a sum of all profits earned in the future.

Of course, the word "profit" is also a bit simplified here. In theory, we shall summarize and discount so called "free cash flows to owners".

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Business plans adviser

well said very knowledgeable thank you for sharing and best regards! =)

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Thanks for sharing your knowledge.  

 

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