How to Increase Your Business Value Using Value Drivers
Value drivers are characteristics of a business that either reduce the risk associated with owning the business or enhance the prospect that the business will grow significantly in the future. Every business owner should consider these essential factors to increase cash flow, as well as reduce risk, thus enhancing the overall value of the company.
An ongoing assessment of your business’ value drivers is integral to success. Profitability is hugely important, but implementing valuation drivers can result premiums. The valuation process involves an assessment of the company that should be part of any owner’s standard operating procedure, providing meaningful, actionable information highlighting the intrinsic value of your business and ultimately maximize returns.
Top Factors that Increase the Value of Your Business
PGP Advisory recommends incorporating these top seven factors that drive business value beyond revenue.
7 Drivers of Business Value
- Financial Performance – Know your numbers and keep good books and records! Both are critical inputs to operating your business, securing a bank loan to finance growth, sale of your business, and a range of other scenarios. The balance sheet- assets, liabilities, and equity positions- is an indicator of the future health of your company. The profit and loss and cash flow statements indicate the company’s profitability and the sources/uses of cash in the business. A company’s ownership, bookkeeper, and accountant work together to ensure that the financials statements accurately reflect the financial performance of the company. The financial statements tell the “real story” about performance. They give you, as the owner, the data you need to evaluate how much cash your business generates today and a means to assess progress toward your financial goals over time.
- Unique Product and Service Offering – An important factor in company value is your mix of products or services that you offer. Identify what makes your product and service offering unique. It gives you a designated place in the market with a very specific customer base, which is great. But, at the same time, be aware that a lack of diversification can create too much dependence on limited markets and industry shifts. Key customers may seek out suppliers who offer a range of products that benefit them. Increasing diversification and vertical or horizontal integration lowers risk, which boosts value.
- Solid Customer Base – Having a customer base that is established, loyal and widespread is important for the continuing viability of a company. As you grow your businesses, be intentional about not putting all your proverbial eggs into the basket of a few customers. This creates a dependency that in the best case reduces your ability to negotiate favorable terms and in the worst case can result a catastrophic loss of revenue. Successful businesses do not try to be everything to every customer. In your strategic plans, identify the customers and customer segments where you want to grow. Be intentional with growth across different customers and customer segments that see value in your offering and that you can serve profitably.
- Talent – Can your business run without you for several weeks? Are you involved in day-to-day tactical execution? Skilled human capital is vital for any organization. A business with strong leadership and a capable team are more valuable to the existing (and future) owner. Company employees contribute skills, creative abilities, experience, and knowledge to the business as well as the health of the company’s culture. They significantly reduce the risk and reliance of the business of the owner, freeing up time to focus on growth or other interests and supports a smoother transition for the next owner when the time comes.
- Technology – Technology enables efficient ways to connect with customers and clients. It makes the business adaptable. Invest in technology that help you better understand and serve the ever-changing needs of your customers. It can also drive operational efficiencies in all aspects of the business, driving down costs and facilitating growth.
- Sales and Marketing Strategy – Marketing refers to the link between the needs of customers and their response to the products or services of a company. A company with strong branding will improve its sales through an increase in market recognition and also give it a clear direction that helps enhance operational efficiency. A company should tie its brand to its mission and strategy direction and be aware of its sales and marketing shortcomings and capabilities. Word of mouth is not a marketing strategy. Be intentional in your efforts to communicate your unique offering to your target market of customers. Over the lifetime of every business, customers will come and go. A strong Sales and Marketing strategy is necessary to sustain and grow enterprises over time.
- Strategic Vision – Strategy involves a choice of how your company will compete in the market place. The company’s management needs to develop a good understanding of the impact of economic factors on their industry, their market share and market position, and their unique and niche offering. The people, processes, technology, marketing approach, financing, etc. should be organized to position your company to win in the marketplace. Focus on who you want to serve, how you want to serve them, and how you do that profitability. Strategy is not a presentation that sits on a shelf, but a living approach to how your company plans to succeed in the years to come.
Understanding Valuation Drivers – Key Takeaways
For your company to remain successful, you should always be monitoring the health of your key value drivers. Value drivers will make a business seem better than its competitors’. By creating as many value drivers as possible, a company can boost its leverage on the marketplace.
PGP Advisory remains steadfastly committed to guide you through your business journey for 2022 and beyond. No matter which phase of the business life cycle you find yourself. If you would like to explore more options for growing your business in the San Antonio, Georgia or North Carolina area, our M&A experts and business brokers at PGP Advisory are here to help.
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PGP Advisory is a full-service business brokerage and M&A advisory firm and a leader in business sales & acquisitions. PGP Advisory specializes in the CONFIDENTIAL sale of privately-owned businesses in a wide range of industries. Our business advisors are highly respected, experienced advisors who are recognized as some of the top deal makers in the business brokerage and M&A industry. We serve business owners throughout the San Antonio and Austin, Texas areas, as well as Atlanta, GA and Charlotte, NC.
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