Running a business is like orchestrating a symphony – it requires meticulous planning, careful execution, and a deep understanding of the market and industry. As a business owner, when you get to the point of evaluating the value of your business, having spent significant amounts of time, effort and money on nurturing your business, whether for succession planning, investment or perhaps for a sale, you want to ensure that you get the best value possible for your business.

This can be quite a bit more complex and challenging than it may seem to be at first glance. It requires careful planning, strategic analysis and a comprehensive understanding of what buyers are looking for. This means focusing not only on making money, but also on how efficiently your company runs, the recognition of your brand, and how attractive it looks to potential buyers. Focusing on these areas can set your business on the path to creating higher value and finding the right buyer for the best outcome. The question then is, what does this entail? Here are a few tips that we think can help:

Start with understanding the current value of your business

Before we can talk about the steps that are needed to increase the value of your business, it is important to first determine two key areas –

• What is your business worth now?
• What are the key indicators that drive the business value?

Gaining insights into these areas can help you determine the areas that need focus to help boost business performance and value. A valuation can also help you gain past and present performance, as well as build a business plan.

In situations like these, business owners could benefit from bringing on a business valuation expert, who can not only help determine value and corroborate this through various approaches and understand value under various scenarios, but can also help you take a deeper dive into the business’s financial performance and benchmark your business to industry standards and competitors, and determine areas of improvement.

Enhance financial performance

While simple to think of, and perhaps equally challenging to implement, focusing on enhanced performance, and not just profitability, can go a long way in justifying sustainable value in a business. Key areas of focus along with a few examples include:

Boost long term profitability:

• Diversify revenue: Explore new markets, expand product lines, implement effective pricing strategies and ensure that there is sufficient diversification in revenue sources to support the business through turbulent times.
• Improve revenue through appropriate investments: Focus on reaching right target markets to help grow business revenue, and target contracts that lead to recurring or repeat business.
• Focus on cost efficiencies: Streamline operations, negotiate better deals with suppliers, and identify spending areas where additional efficiency could be created through the use of technology. Analyze internal processes to identify and eliminate bottlenecks thereby improving profitability.

Cash is king:

• Focus on collections: Implement robust receivable policies and incentivize payments to minimize outstanding debts and ease cash flow. Conduct credit checks on customers to the extent possible to reduce bad debt situations. If collections are a large issue, consider bring in dedicated people or a team to help improve collections.
• Optimize inventory: Evaluate current inventory management and tracking systems to find ways to minimize excess inventory and improve inventory turnover.
• Consider alternatives to big ticket spending: For machinery that can depreciate quickly, consider leasing or financing items to avoid large cash outflows.

Maintain comprehensive financial records:

• Maintain Accurate Records: With the growing focus on data collection and analysis, maintaining accurate and comprehensive records of all business dealing will help you be better understand and track your business, while also boosting the level of sophistication of the business, making it more appealing to investors who value transparency and reporting.
• Conduct Regular Financial Audits: Conduct regular financial audits to ensure compliance and identify any potential issues, before they reach a critical point and cause business failure.

Focus on areas that can help your business stand out

Most prospective buyers do not want to buy a business simply for a business plan or how much you generated in a single year. A business’ biggest asset and USP is how it differentiates itself from competitors, and the people who help drive and achieve that vision.

Create strong customer relationships:

While having customers is one a positive, keeping them happy is another thing completely. Turning one-off customers into loyal, long-term buyers is the ultimate value driver for a business.

• Build trust through service: Build a culture of exceptional customer service to develop customer loyalty and generate positive reviews. Cultivate long-term relationships with key customers to enhance recurring revenue.
• Build long term brand recognition: A company where customers relations are tied to the Company and can readily identify and associate with its brand, by building a reputation for quality and timely work will always be more valuable than a business where customer relations are concentrated with a single or few stakeholders.
• Embrace technology and innovation: Businesses that fail to leverage technology risk becoming obsolete. Identify areas where technology can enhance customer experience and operational efficiency. Common examples include customer relationship management (CRM) software to streamline sales and marketing, adopting cloud computing for improved data storage, safety and collaboration, leveraging e-commerce platforms to expand online sales channels, utilizing artificial intelligence (AI) for data analysis and customer service, and integrating social media marketing to build brand awareness and engage with customers.

Develop a Strong Management Team:

• Build a Skilled Team: People are at the core of any successful business and the most highly valued companies always have the right combination of leadership and staff to carry out its long-term vision. Hiring and retaining people with the right experience, skills and a mindset for long term growth is crucial to a business’ success. Invest in training and development to build a capable and motivated team that can instill confidence in a business and its output.
• Ensure Succession Planning: Have a clear succession plan in place to ensure smooth transitions, minimizing impact on the business and helping a business retain its long-term client relations regardless of who oversees operations.

When considering the next step for your business, it is important to take a moment to assess where the business stands in relation to a variety of key factors that impact its value. Further, determining this business value can be a complex process whereby cash flows or profitability along may not be able to factor in various business strengths that you have worked hard over time to develop. A business’ value can also change significantly based on the context that it is being valued in.

In any case, clearly defining the goal of determining and looking to maximize business value, such as seeking investors, family planning, an outright sale or an evaluation of wealth is an important first step, before jumping into the process of valuing a company. Further, when considering various factors that drive value, it is important to consider all tangible and intangible, qualitative and quantitative factors that make your business what it is today. And while some of this may be overwhelming to condense into a single number that defines the worth of your business, with some planning, time and, in many cases, professional advice, you can determine the most effective way to arrive at a value that justifies the hard work, skill and time spent in building your business while keeping in mind the complexities of the market we live in today.

If you would like to understand the value of your business or identify ways to maximize value, reach out to us today.