In our previous newsletter we discussed building value in your business by deliberately creating opportunities. Central to this approach is to put in place well considered strategies.
We have identified the following 12 key areas in building the value of your business. It is important to reiterate that each business is different and some of the factors will be more relevant or of greater priority depending on your circumstances.
Have a conversation with us: Our business advisors would value the opportunity to talk through the issues, specific to your circumstances, on maximising profitability and the value in your business.
- Strategic plan
- Importance of technology
- Systems and processes
- Sustainable profit
- Managing risk
- Reporting for decision making
- Competitive advantage
- Cash flow and finance
- Business drivers
- The right advice
- Succession strategies
Systems and processes
Every business and organisation has systems and processes that bring both efficiency and quality to their products and services. When documented, these processes enable business growth to be managed effectively.
Create a culture of continual process improvement. Encourage staff to get involved in their areas; it can create an atmosphere of ownership and buy-in. Ensure that the right people are doing the right tasks; to help with this, document job descriptions and processes.
Continually strive for best practice together with appropriate levels of quality assurance to achieve the best outcomes.
Profitability is a key component in valuing your business. You need to understand your key profit drivers and KPIs and those relevant to your industry. Have you considered benchmarking your business against others in your industry? Have you undertaken a profitability sensitivity (What If) analysis?
Your business needs to serve you, not the other way around. You need to ensure an adequate return for your efforts in addition to an appropriate return on investment. Continually challenge yourself and re-evaluate; am I maximising the returns from my business? Does the current level of profitability match my expectations.
Most businesses, no matter how successful, if unprepared, can be adversely impacted by unexpected events.
Whilst it would be great to run a business where nothing ever went wrong, the reality is that every business needs a Risk Management Plan.
There are many factors that contribute to business success. Understanding these factors for your business, anticipating the potential risks and establishing risk mitigation strategies is critical.
Large companies typically spend significant amounts of time and resources on risk and contingency plan. SMEs and small business generally tend to overlook the importance of risk management. Prevention is the key to avoiding potential disaster.
Reporting for decision making
Effective financial reporting enhances your ability to make timely decisions based on quantitative evidence. What information do you need to run your business effectively? Are you getting the most out of your accounting and management information systems? Do you have an integrated planning tool that forecasts future profits, funding and working capital implications and cash flow effects?
Every business should understand what differentiates them from competitors. Understand why your customers come to you. Whilst price is always important, build points of difference around:
- Excellent customer service
- Range and type of products and services
- Build loyalty and ongoing relationships
- Reputation and perceived market leader
Know your competitors and continually monitor industry and customer trends.
Cash flow and finance
All businesses need initial and ongoing funding to build and support growth. Do you understand how your business is currently funded? What is your reliance on internal/external funding?
Understand the dynamics of your working capital and are you leaving enough cash profit in the business to fund growth and maintain sustainable levels of external debt?
Make sure you understand the drivers of cash flow in your business and remember…
Profit does not equal cash. Profit is not always what it seems!