Creating Business Value for the Small Business
In this series of Blogs, we’re looking at many practical aspects of a business that also have an effect on value. Creating and enhancing value in your business is always a key objective, especially where your ultimate aim is an eventual sale. It’s often hard for smaller businesses to do this, but there are many things you can “copy” from larger corporates about creating value. Here are just a few pointers:
• Value is measured tangibly, such as sales and profit, but also intangibly, such as through people, reputation and market differentiation.
• For tangible value, ensure sustainable revenue growth, returns at good margins, and a well controlled cost structure.
• For intangible value, ensure 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, attention to costs is paramount. Value can often be enhanced as much by attention to costs as through increased business. Attention to costs should be a permanent focus.
• Clinically assess 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. Avoid “buying” new business at unsustainable margins.
• Ensure you have a clear plan for creating value from your business 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, and ensure resources are properly allocated to that key objective.
• Business process is also important. Key value–adding processes should be optimised through efficient allocation of resources. Non value–producing processes should be simplified, such as reducing time–consuming processes.
• Finally, ultimately it is the people within your business that represent and maintain it’s value, and creating and sustaining the best team you possibly can is of at least equal importance.
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. Try always to “step back” and see the wider picture, or to continually question historic and embedded processes.
5 March 2019