DFK Gooding Partners
April 17, 2023
Welcome to the next insights series from our Business Advisory Team: Improving Business Value. In this four part series we will be focusing on strategies business owners can implement in order to improve the value of their business. Our key areas of focus will be centered around business growth, business performance, and business succession.
In this first article, we discuss why value improvement is important beyond just the sale of a business, and the Business Value Optimisation (BVO) factors you need to be aware of.
How value improvement can provide ongoing strategic value
While improving the value of a business is clearly the highest priority when preparing for a sale, a value improvement strategy also provides a wide range of ongoing strategic benefits for businesses seeking growth and new opportunities. These can include:
Increased profitability
A more valuable business is likely to generate higher profits, as it is more attractive to investors, lenders, and potential partners. This can provide the resources necessary to invest in new products or services, expand operations, or improve customer service.
Competitive advantage
A business with a higher value is likely to have a competitive advantage in the marketplace, as it can attract top talent, secure better partnerships, and invest in marketing and advertising to reach new customers. This can increase market share and help the business outperform its competitors.
Resilience
A business that is more valuable is likely to be more resilient to market fluctuations or economic downturns, as it has the resources and flexibility to adapt and adjust its operations to changing conditions. This can help the business to weather economic storms and emerge stronger on the other side.
Attract new investors
A business that is perceived as valuable is more likely to attract investment from venture capitalists, angel investors, or other sources of funding. This can provide the capital necessary to expand operations, hire new employees, or invest in new technology or equipment.
Increased sale price
By improving the value of a business, the owner can potentially sell the business for a higher price, providing the resources necessary to fund retirement or future plans. This can also make it easier to sell the business and attract potential buyers who are willing to pay a premium for a valuable and successful enterprise.
Where to begin with a value optimisation strategy?
Understand your objectives
The first step is to understand your objectives, followed by understanding your capacity to undertake value improvement initiatives. Once these are identified you can focus on selecting your value optimization factors.
To assist, our Business Risk Assessment is a free online tool designed to quickly identify your value objectives, existing capacity, and risks to value improvement.
Some typical business objectives could include:
- Business sale
- Succession planning to hand over the business but retain a share
- Seeking new investment from outside investors
- Improve profitability to increase funding for new innovations initiatives
Understand your capacity
When reviewing your capacity to undertake improvement initiatives:
- What are the capabilities within your existing team? Do you have the experience available to drive initiatives?
- Do you have access to external data and benchmarks to measure your business against?
- Do you have the time / capacity to undertake the required changes?
- How will you measure success?
Business Value Optimisation factors: What they are and where to optimise
Business Value Optimization (BVO) factors are various elements that the business needs to consider when seeking to maximise the value it derives from business activities. These factors are essentially the key drivers that help a company achieve its goals and objectives, and will vary from one organisation to another depending on their business model, industry, and size.
The factors you choose to priorities and optimise as part of value improvement will ultimately depend on your objectives and available resources. There is no one-size fits all approach and careful consideration should be given to where the best effort for reward can be realised.
The following table provides an indication of BVO factors, and a small sample of some suggested industry best practice strategies that can be implemented to address and improve these:
BVO Factor
Strategy to optimise value
Growth
Implement well defined business strategies and goals:
- Growth plan
- Alliance/network
- agreements
- Joint ventures
Succession Planning
Ensure you have a considered plan for succession in place covering commitment, documentation and ideally – implementation
Financial Performance
- Benchmarking against industry and competitors
- Improve WIP & debtors recovery
- Introduce progressive billing & fee funding arrangements
Systems
Document processes & have up-to-date, and relevant systems technology, eg:
- CRM
- Inventory Management
- Financial Management
Staff
Retention, attraction and performance improvement:
- Introduce performance based incentive agreements
- Personal development programs
- Leadership training
Client retention and succession
- Review client services and referrals
- Address client succession requirements
Common barriers to starting value improvement initiatives
Before undertaking any value improvement initiatives, business owners should be aware of common barriers that can hinder value improvement initiatives. These can include:
- Being too principal reliant on key individuals, often the founders or owners
- Failing to spend enough time working on the business, and being consumed by day-to-day operations at the expense of strategic planning and analysis
- Lack of client segmentation can prevent identification of the most profitable customers and target value improvement efforts within these segments
- Inefficient or outdated systems and processes can lead to delays, errors, and inefficiencies in data required for value improvement, reducing profitability and make it difficult to measure results
An experienced advisory team can assist you with identifying these barriers and mapping out a process to begin addressing these in order to correctly inform value initiatives. A key tool we use to assist clients to identify barriers is our Business Risk Assessment – a free online survey that can be completed in under 3 minutes.
Check back next month for the second part in this Insights Series: Business Performance and Systems
