Great businesses rarely just happen. Ideally, you want your business to be valuable to others so that when the time comes for you to move on, your business is an attractive proposition for someone else. Whilst it is possible that a once in a life time opportunity can just happen to come your way, a far more certain approach to building value in your business is to deliberately create opportunities by putting in place well considered strategies.
What drives value?
It is important to recognise and understand what drives value. Your brand and reputation are invaluable when they are working well but they can be destroyed in an instant; the News of the World brand is a classic example. Find your point of difference and create a niche position. Where there is lots of competition, you need to stand out. However, be careful. Niche is good but make sure it does not unduly limit your markets and customers. Reflecting on lessons learned from the GFC and even the Facebook IPO, there are many examples where emotion and sentiment were drivers of value. It was a hard lesson for many but ultimately profitability and cash flow emerged as key drivers of value. Value is all about the future not the past. Understanding the importance of stability, growth and earnings potential will really increase the value of your business.
Putting a value on your business
There are a few methodologies that are used to determine the physical value of your business. Some of the most methods used are:
- Net assets
- Earnings based
- Rule of thumb
Whilst it may be useful to understand historical value, potential or future value may be more relevant. As we stated earlier, a well considered strategy could release potential you always considered possible. Saward Dawson would be pleased to help you understand your business’ drivers, existing and future, and to assist developing an action plan to develop it to its full potential.
The building blocks of unlocking value
We have identified 12 key areas in building the value of your business. We will briefly describe each in a series of articles over the next few newsletters. Here, we list the 12 factors building the value of your business. Remember that each business is different and some of the factors will be more relevant or of greater priority depending on your circumstances.
- 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
Firstly, it is essential to be clear why you are in business. Then develop a dynamic, concise strategic plan. Set clear goals for your business and determine measurable outcomes. These will then provide a clear roadmap to keep you on track.
Your aim should be to build a business that is attractive to others. Take time out from your business to work on your business.
Saward Dawson can assist in developing and documenting an effective strategic plan for your business.
People are usually the key to success or failure in your business. Have you got the right people and are they performing the right roles?
Make sure your people know where they fit in the organisation. They probably know what they contribute day-to-day but may not understand their role and career prospects in the longer term. Consider if your business is positive and affirming and determine to develop each person to their full potential.
If not already in place, establish a staff appraisal and accountability framework. Make sure that it is consistent with your goals and strategic plan.
Are you too reliant on a key person? Could that person be you? Do you need to empower and develop others to strengthen the attractiveness to prospective buyers?
Importance of technology
We don’t need to be told that the rate of change of technology is enormous. But is your business keeping pace with change? These days, technology drives efficiency and competitiveness.
Are you investing in the latest technologies relevant to your industry and do you have a planned capital equipment replacement/upgrade program established?
Falling behind in technological developments can be detrimental as you strive for efficiency and cost competitiveness in global markets.