The most reliable way to get top dollar for your business is to start managing value early. There are time-tested ways for owners to protect and boost the value of a business long before a sale is on the horizon. Keep reading to explore seven areas where you can start maximizing business value now.
Ways to Start Managing the Value of Your Business Today
1. Put Solid Financial Reporting and Controls in Place
Properly organized financial statements provide a complete view of your company’s overall health. The best reporting covers essential elements like receivables, revenue, margins, expenses, fixed assets, debt profile and general cash management.
2. Maximize Your Competitive Advantage
Although a bit more abstract than financial reporting, it’s equally important to your company’s valuation. Competitive factors may include patents, certifications, exclusive contracts, geographic reach, vertically integrated services, or highly specialized customers or employee capabilities.
3. Diversify Your Customer Base and Cut Reliance on Key Accounts
What happens if your biggest customer hits a down cycle and needs to cut spending? Ideally, you can weather temporary sales drops by increasing wallet share with other existing customers (adding value) while continuously acquiring net new business from adjacent prospects.
4. Scale Your Business by Leveraging Technology and Equipment
Digital and equipment transformation options can increase throughput and profitability by eliminating or automating manual steps. Reducing labor costs with equipment and technology can also improve Earnings Before Interest Taxes and Depreciation (EBITDA). Look for opportunities to capture process data at the source and then reuse it throughout all your business systems. Follow products end to end to identify and minimize waste.
5. Boost Key Employee Retention and Develop Younger Leaders
Potential buyers are looking for a workforce that can carry them into a profitable future. Consider pushing leadership roles into the younger cohorts of your organization and look for ways to incentivize top talent to stay with you, such as a management equity plan or retention bonuses.
6. Increase Cash Flow and Decrease Time to Money
Cash flow considerations include streamlining invoicing terms and timing and reevaluating overhead and expense outlays. Some owners pull cash out of the business for tax reduction that could go toward value-added investments. Others miss out on lines of credit that could fuel growth.
7. Develop Sources of Recurring Revenue
Some companies (especially in the professional services space) get so focused on the “get work – do work” cycle that they overlook lucrative recurring revenue opportunities. These could take the form of maintenance or supply contracts, managed services deals, or brand, product or technology licensing.
Adopt an Entrepreneurial Mindset to Drive Growth and Manage Value
The upside of putting these seven measures in place (or a mix of those that make the most sense) is not just a better payday when a future sale occurs. These recommendations will yield current tangible benefits by improving efficiency, profitability, and peace of mind. They also provide a rewarding work experience for your employees – the people that care for your top customers day in and day out and make them want to come back for more.
To make room for this mindset in your leadership routine, you may need to delegate some of your operational or technical roles to other members of your executive team. This will help retain and motivate top talent and make your organization more responsive to opportunities for growth and innovation. This can be a challenging transition for owners who launched the business on their personal expertise, but the more successful you are, the more crucial these considerations become for succession planning and the ability to scale.
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Clayton and McKervey’s transaction services experts help businesses in the industrial automation, architecture & engineering, and manufacturing & distribution space manage value for today and for the future. We also excel in succession planning, tax strategies and overall financial management. Contact us today to learn more.
