In the last blog, I spoke about strategic assets and how the identification of strategic assets can lead to a higher valuation.
But what happens if you don’t have a strategic asset? There are still ways you can improve your valuation when you come to sell.
Some seminal research by The Value Builder™ identified 8 drivers of value. Using a large company data base, they showed that improvements in each of these value drivers led to an increase in the offer price that companies received.
I have gone one step further and identified that one of The Value Builder™ drivers was really the important strategic asset driver. The other seven drivers I have renamed and grouped into three areas:
- Financials – Size and Growth
The two value drivers of financial performance and growth sit in the Financials. It is well-known that the larger the business, the more valuable it is because of the higher profit and each $ of profit is worth more. Growth is another major driver and we will talk about the importance of growth in a future blog.
- Investment Drivers
The investment drivers include working capital and future sales security. Both these drivers relate to the quality of the growth in the financial driver.
- Stakeholder Drivers
The stakeholder drivers are often the areas where businesses fall down, which include customer stickiness, independence and the owner’s role. Customer stickiness refers to how well your relationship is going with your customers — how many complaints do you get, and do customers repeat buy? Many smaller businesses do not systematically measure this at all, yet larger businesses are very concerned with this aspect.
Independence refers to how dependent the business is on individual employees, customers or suppliers. If a single customer is more than 15% of the revenue, then this is a significant risk for the buyer. The final stakeholder driver is owner’s role, which is a big one. Can the business operate without you? The best treatise on this is Michael Gerber’s book, The E-Myth, and its quote that an owner should work on the business, not in the business.
In my next blog post, we’ll dig into some of these drivers and see what can be done about each one.