Do you want to know how to increase the value of your business? Give the buyer (investor) what they want. And what does the smart investor look for when they are
considering the purchase of a business? They look for a company that can achieve above average returns with limited risk. They want a turn key operation that has a proven track record and has developed the people and processes to insure consistent, long-term success.
At LSL CPAs and Advisors, we use the CoreValue Business Assessment tool to help owners identify opportunities to enhance the value of their company. CoreValue is a power software tool (developed by researchers at MIT) that will evaluate business performance in 18 critical areas that investors consider important. We call these 18 areas, Value Drivers.
The better you perform in each area, the greater the value of your company to an outside investor.
The 18 Value Drivers are broken down into 9 Market Drivers and 9 Operational Drivers. The Market Drivers deal with your performance in finding and keeping customers and developing a consistent revenue stream. The Operational Drivers deal with performance in the systematization of production and customer service and the management of people and finances.
Here are summary definitions for each of the 18 Value Drivers.
9 Market Drivers
Growth refers to a company’s top line revenue. Strong growth means your company has a history of consistent growth greater than its competitors, coupled with projected, future revenue growth above the market’s rate.
LARGE POTENTIAL MARKET
The larger the market (tapped and untapped) the more attractive it is because it represents more opportunities. However, being a leader in a smaller niche is also attractive. Even if you have a true competitive advantage, a growth market is almost always favored.
DOMINANT MARKET SHARE
Your company should control a high portion of the available market relative to its competitors. If your company sells products or services in more than one market, focus on your primary market, or the market that is most fundamental to the success of your company.
A key component of business value is the degree to which it can generate recurring, profitable revenue. Contracts or other firm commitments are the best way to guarantee future revenue, but other examples include a long-term lease on a high traffic location or a strong loyalty program.
BARRIERS TO ENTRY
Significant obstacles (which could include legal, capital, and/or market barriers) facing a new entrant into your company’s market can increase the value of your business.
Your company benefits from a well-diversified customer base. Valuable companies have many different customers including long term customers, new customers, and developing customers and minimizing risk by avoiding putting all your eggs in one basket (or just a few baskets).
Your company has greater value if it has a product/service with unique characteristics that provide a competitive advantage. A unique product or service that customers prefer will keep them coming back to you instead of your competitors and may provide higher margins.
A strong brand name that resonates with your customers can add significant value to your company. Your company benefits from a recognizable brand that reinforces the business’ presence in the marketplace and supports the company’s objectives.
Margins are simply a measure of how efficiently you make money. The more your company enjoys gross and net margins greater than the industry your margins, the more valuable your company.
9 Operational Drivers
An easily understandable company is a valuable company – customers, employees and partners can quickly “get” what the company is all about. Stakeholders should be able to easily obtain a holistic understanding of your company including your company’s performance, practices, culture, discipline, and mission.
All of your company’s financial matters are in order and you follow best practices. These include clean audits, readable financial statements, operating reports, and adequate tax, insurance, banking and risk strategies.
SALES AND MARKETING
High value companies have the ability to produce revenue in a proven and systematic way; not simply based on the efforts of individuals within the business today. This includes a thorough marketing plan, appropriate sales skills and technology, and accurate and timely marketing and sales metrics in place.
Your company has the ability to consistently deliver on the sales promises made to the marketplace and to do it in a systematic and process-driven manner.
High company value derives from deep and long-term customer satisfaction. Your company benefits from setting satisfaction metrics and tracking and using key measures to assure customer expectations are met at all levels.
Your company value is increased if it has a leadership team/individual in place to carry on the company’s vision and mission while helping the owner achieve his/her objectives. You should be able to execute a plan to run the company effectively for an extended period of time if the business owner was not available.
Your company value depends on its ability to hire, develop, and retain quality individuals. The right people can strengthen culture, ethics, customer relations, production, innovation and other aspects of operations, all of which can add to company value.
You have all legal matters in order, documented, and your company follows best practices. There are no claims for or against your company, you have a process to handle potential liability issues, you have contracts with key customers, suppliers, advisors, contractors, and employees, and you have agreements with all investors.
A deliberate innovation culture and processes are invaluable to create an ongoing competitive advantage and company value. You should have proven and systematic processes to drive and capture innovation at all levels and a way to leverage collaboration for innovation.
Where do you Stand? Free CoreValue Discover Report
Every business has their strengths and weaknesses. Also, there are some of the 18 areas where you may not be able to achieve peak performance. However, with some planning and guidance, there will be areas that can be improved to help you obtain the maximum selling price for you company. If would like to find out what your business is worth now and the potential for adding increased value, all you need to do is complete our FREE CoreValue Discover Report.
Go to our Discover CoreValue page > Click the tab “Services” and “Discover CoreValue” to find a link to the CoreValue assessment tool. There you can complete a short questionnaire (it’ll only take around 15 minutes) about your business and receive a 2 page report about the state of your business and potential for growth. Once you have completed the survey, contact an LSL partner to schedule a free consultation to review your results. We look forward to helping you grow the value of your business as your “Peak Performance Partner”.
For more than 40 years, Gary has pursued leadership in the profession by working his way up from staff accountant to managing partner in the same firm and then supporting a merger between Vilmure, Peeler & Boucher, LLP and LSL CPAs in 2013. His clients have included successful entrepreneurs in construction, manufacturing and other closely held enterprises, guided by Gary’s knowledge in tax, accounting, strategic planning and even personal estate planning.
You can reach Gary at 714-672-0022.
Read Gary’s complete bio.