Regardless of the industry or business type, there are a number of key considerations that have almost universal applicability to the value of all businesses. The value drivers discussed below have a direct impact on the risk profile of businesses and accordingly the value of most businesses.
Below we discuss 4 value drivers affecting business values. These are the activities that are most likely to increase your business value in the shortest amount of time possible.
1. Develop and Review Key Performance Indicators
A key performance indicator is a measurable value that demonstrates how effectively a business is achieving key business objectives. Organisations use key performance indicators at multiple levels to evaluate their success at reaching targets. High level key performance indicators may focus on overall performance of the business while low level key performance indicators may focus on processes in departments such as sales, marketing, human resources and support.
Key performance indicators, similar to ratings, will help determine the current and future value and saleability of your business. If you’re in the market to sell, showcasing your key performance indicators will dramatically affect how your business is perceived by potential buyers. If selling your business is not your immediate goal, focusing on key performance indicators can have a powerful impact on the value of your business down the road.
Measuring and giving attention to your key performance indicators can help your business generate sales and revenue, build customer loyalty, retain quality employees, and increase profitability and are a key driver affecting business valuations.
2. Management’s Strategic Planning and Outlook
Management’s long term strategic outlook is a major driver affecting the value of a business, as failing to plan is planning to fail. In business it is imperative that the management have a long term strategic outlook for the business. Strategic planning is the overall plan of the business and too often many business owners operate without a long term business plan and set of goals in place. A strategic plan with established goals and objectives allows a business to measure its progress and work towards its goals based on a set out plan.
Management should be constantly reviewing not only the weaknesses of the business but also the strengths. This ensures that the business is working to improve and capitalise on what the business is already doing well but also striving to improve the weaknesses that the business has, which will have a direct impact on the business value.
3. Internal Operations and Processes
Many businesses grow from small operations offering a smaller number of products and services to large multi-faceted business, offering a large range of products and services. Ensuring that a business has appropriate and effective processes is a major value driver affecting business values. It is imperative that as a business grows that that there are systems in place to streamline operations and ensure operations are completed as effectively as possible.
Just because something has always been done a certain way does not mean that it is the most efficient way to complete the task and businesses should be constantly reviewing their current processes and ensuring that processes are as efficient as possible.
Through ensuring that all processes are thoroughly documented a business is able to demonstrate that if a new owners were to take over the business there would be clear guidelines on how the internal operations of the business should be undertaken which is a major driver affecting business value.
4. Financial Measurement and Management
Financial measurement and management techniques that monitor the day to day activities of a business provide a framework to enhance a business’ strategic planning efforts and are a key driver affecting business value.
Financial measurement and management can be done through using a dashboard on a regular basis to see how the business is performing on a day to day and week to week basis. Trying to build a business without specific financial goals usually results in a less efficient path to success. Performance goals and limits provide the framework for successful operations and drive business values.
One of the key financial management techniques involves undertaking a SWOT analysis which identifies the strengths, weaknesses, opportunities and threats of a business. The process of undertaking a SWOT analysis gives the management of a business a thorough understanding of what the business is doing well and where the business can improve.
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At Quinn M&A we have significant experience in analysing business values and understanding the key value drivers that affect the value of your business and we have experience working with a range of different industries and business types. Call us on 02 9223 9166 or submit an online enquiry to find out how we can help you.