Many business owners wonder how much their business is worth. Every day, I help business owners understand the worth of their business. Naturally, the next question they often ask is “How can it increase?” Answer: GROW IT!
If the business contains value today, won’t growing it create more value?
Simply put, yes.
The hard part is how to grow. And while growing, how do the owners and managers maximize profits and minimize costs while still delighting customers and employees? Let me offer up a few areas where owners and managers can drive business value:
- PATH TO SCALE – is there a clear path to achieve meaningful scale or is the path unclear and difficult?
- MARGIN STRENGTH AND STABILITY – have margins remained consistent historically and is there a view that those margins will remain? How will margins be impacted during economic expansion or contraction periods?
- GROWTH CHARACTERISTICS / PROSPECTS – are there clearly defined strategies, additional distribution channels, and new products the company can pursue that will allow it to continue growing?
- WORKING CAPITAL REQUIREMENTS – is it easy to collect payment from customers? Do they pay quickly? Are there low inventory volumes? Are vendor payment terms favorable? Are credit facilities or other bank products available?
- LEADERSHIP QUALITY AND DEPTH – are key positions filled and are they filled by qualified managers?
- COMPETITIVE ADVANTAGE – are the products or services offered clearly better than those offered by competitors and can that advantage continue?
- MARKET SHARE – is the company one of, if not, the largest market participant? If not, is there room to take market share and can the company realistically take market share?
- INDUSTRY GROWTH – is the industry expanding? Will that growth continue?
- VALUE PROPOSITION – is there clearly defined value in the product or service? Are customers willing to pay for it?
- CUSTOMER DIVERSITY / CONCENTRATION – are sales diversified across customers? Is there little risk that if a customer no longer purchases from the company that revenues will take a meaningful hit?
- BARGAINING POWER OF SUPPLIERS – does the company have supplier redundancy and diversity to minimize disruption? Are terms favorable?
- SYNERGIES AVAILABLE TO POTENTIAL ACQUIRERS – could a potential acquirer expand revenues and / or reduce costs based on the acquirer’s customer base and cost profile?
There are certainly many more features that could be analyzed to drive business value. If the owners focus on strengthening their position of the attributes identified above, I have no doubt that business value will increase.