DFK Gooding Partners
June 15, 2023
Welcome to part two of our Business Advisory series on improving business value. In this article, our Business Advisory Team will be drilling down into some specific Business Value Optimisation (BVO) factors – namely benchmarking, and business systems, and why each of these factors should form the foundation for your value improvement strategy.
If you missed our first article in this series, ensure you read through it for an introduction to optimising business value – you can find it here.
Why is business value optimisation important?
Correctly implemented as part of a value improvement plan, value optimisation can provide a number of key benefits, including increased profitability, competitive advantage, the ability to attract new investors, and to command a higher sale price. Additionally, secondary outcomes can flow through from a value optimisation strategy that positively impact your business, such as improving culture.
What are the drivers of value?
Business Value Optimisation (BVO) factors can include growth, succession planning, staffing, business systems and more. Our first article covers optimisation factors in full detail.
Before nominating focus areas of opportunity and embarking on a value improvement initiative, it is crucial to understand your objectives, and assess your resource capacity to deliver on these. Few companies (except maybe Apple) have the free cash flow to invest in every and any value improvement opportunity. Ensuring you have a trusted advisor to assist in this process is of equally high importance to ensure you are getting the optimum value for effort. In addition, impartial views from an external perspective can quickly identify any confirmation bias you may be unaware of. If you’re unsure how to approach identifying your objectives or resourcing, our Business Risk Assessment is a great online tool to get you started.
Value optimisation factor: Business systems
A business with good systems is not reliant on the business owners. It is important to have procedures and systems in place that allow the business to function seamlessly regardless of the presence of the owners. Consequently, the business will be more attractive to prospective buyers knowing that they don’t run the risk if the owner or key personnel exit.
Under value optimisation of business systems, all systems and processes should be documented and all staff are aware of roles and responsibilities within business operations. This ensures that valuable information about the day to day running of the business and its client base does not leave when the owner exits.
When seeking to improve value we typically focus on operational efficiency, sales and marketing systems, and financial management. However other systems such as CRM, Human Resources, and Information Technology are important and can provide valuable opportunity.
Financial management optimisation:
Enhancing financial systems and processes can significantly impact business value. This includes optimising budgeting and forecasting, improving cash flow management, implementing robust financial reporting and analysis systems, and ensuring compliance with accounting standards and regulations.
Operational efficiency optimisation:
Streamlining operational processes and workflows can enhance productivity, reduce costs, and improve overall efficiency. This can involve optimising supply chain management, inventory control, production processes, and logistics.
Sales and marketing process optimisation:
Enhancing sales and marketing systems can drive revenue growth and increase market share. This can include refining sales processes, implementing effective marketing automation tools, leveraging data analytics for targeted marketing campaigns, and optimising customer acquisition and conversion strategies.
Value optimisation factor: Benchmarking financial performance
Optimising financial management systems will lead to some improvement of financial performance when measured against past performance. However, comparing your business to your peers – also referred to as benchmarking – will highlight areas you’re doing well, identify performance gaps and opportunities for improvement, and shine a light on peer achievements that you could emulate.
Most importantly, having access to comparable industry benchmarks is essential when valuing a business, as it provides additional integrity behind valuation assessments. When providing benchmarking for clients, our Business Advisory team leverages the data analytics behind one of the most accurate & largest database of SME valuation benchmarks in Australia.
Financial Benchmarks & non-financial benchmarks
Standard financial benchmarks can include profitability, liquidity, operational efficiency, and financial stability, and are important to measure and assess the overall financial health of the business. These are widely accepted measures and provide a consistent analysis, when the correct peer group is identified.
In addition, non-financial benchmarks can be a very helpful tool to complement the hard numbers. These typically include customer satisfaction (net promoter score), employee engagement, operational efficiency, Innovation and R&D, and sustainability and Corporate Social Responsibility (CSR). Accurate measurement of these benchmarks will identify your performance in delivering exceptional customer experiences, employee satisfaction and loyalty, innovation, cost reduction and responsible business practices.
For both benchmarking cohorts, the selection of peer groups is crucial to ensure insightful, and useful benchmarking data. Ensure you engage an advisor with the relevant experience, industry exposure, and advisory network to provide these insights for you.
I’m ready to start improving value – what next?
In this article, we focused on two key BVO factors that we recommend you should be including as a foundation within any value optimisation strategy: business systems and benchmarking financial performance. However, the depth to which you engage with each of these factors will ultimately depend on your business context, your specific objectives and available resources.
An important tool we use to assist clients with beginning any value improvement strategy is our Business Risk Assessment. This is a free online survey that can be completed in under 3 minutes. You can find our risk assessment here.
Alternatively, please contact our business advisory team directly via the below contact form and an advisor will be in touch.
Contact Us
info@dfkgpca.com.au
(08) 9327 1777
