Selling a Privately Owned Business – Briefing 7 – Creating Value
The most important consideration is the eventual objective from the sale, which is normally to maximize the value of the business.
So, creating and enhancing value in your business is a key objective at any time, but especially where the ultimate aim is an eventual sale.
Larger corporates are accustomed to relentlessly focusing on value creation throughout their entire life cycle, but for many reasons, smaller businesses have more difficulty doing so.
However, there are many ways in which SME type firms can learn from larger corporates in creating value. Whilst by necessity a general view has to be taken, nevertheless set out below are a few pointers on creating and maintaining value:
• Value is measured both in tangible form, such as revenue and profit, but also in intangible form, such as people, reputation and market differentiation.
• The key factors in creating tangible value are to ensure continued and sustainable revenue growth, producing a return at good margins, with a well controlled cost structure.
• Key issues in creating intangible value include ensuring you have the right infrastructure and people to deliver that value, and the strategic and market position on which to continue to build a sustainable business.
• Although often a less attractive subject for smaller businesses than, say, business development, attention to costs is paramount. Value can often be enhanced equally by attention to costs than by increased business. Attention to costs should thus always be permanent, not temporary or fluctuating.
• Clinically assess all spending and the allocation of financial resources in the business. Check that those resources properly reflect your key business priorities. Try to ensure that the longer term cost structure is focused and sustainable.
• Focus always on margin and return, rather than volume, and avoid “buying” new business at unsustainable margins.
• Assess and understand your strategic objectives, and develop a plan for creating value from that strategy. Understand and focus on what really drives your business.
• Have a clear strategy for identifying and capturing new business. Identify what the key factors are that drive increased business, and ensure resources are properly allocated to that key objective.
• Attention to key processes is important, in two ways. Non value-producing processes can often be simplified, such as reducing time-consuming processes (for example payroll). Additionally, key value-adding processes such as key account management can be optimised through efficient allocation of resources.
• Finally, ultimately it is the people within the business that represent and maintain the value, and creating and sustaining the best team you possibly can is at least equally as important as any specific business or cost activity.
The above points may seem obvious, but the reality of running a small business often means that an owner becomes sucked into working “in” rather than “on” the business. There is all too often insufficient time to “step back” and see the wider picture, or to question and revisit historic and embedded processes. If this could be done, it would almost always result in an improved business with greater and sustainable value.
16 August 2018