Foresight – Pay Attention to Your Company’s Value Drivers

Posted on January 18, 2012 by admin | Posted in Highlights

Pay Attention to your Company’s Value Drivers

What makes your company valuable? Every business has specific attributes that create value for owners.

These are the elements that potential buyers or investors look for when assessing a business, and they’re the factors that owners must focus on to ensure an organization’s long-term success. Among the most common value drivers are:

Financial performance —

In today’s economic environment, cash is king. A history of revenue, profitability and good cash flow is crucial for the company’s short- and long-term viability. Keep an eye on the key numbers weekly so that you are able to quickly identify problem areas and trends.

If you are not tracking your key performance indicators (KPIs) regularly, it’s not too late. Talk with your accountant about which KPIs are most relevant to your business and how often you should be looking at them.

Management team. —

What would happen if you were suddenly incapacitated, or if a key executive left your company? Does your management team have enough depth and strength to keep the company going and growing?

Don’t make yourself — or anyone on the executive team — indispensible. Assess and invest in your executive team’s skills so that as a group, they are ready to move the company forward. Also, begin succession planning long before you intend to retire so that the next generation of leadership is trained and ready to take over when the time comes.

Intellectual property. —

You may have patents, trademarks or proprietary processes that distinguish your company from its competitors. Are they properly documented and protected? If not, they may be at risk.

Conduct a company-wide review to identify your intangible assets and take steps to secure their value. Also reinforce to your employees the importance of protecting the company’s intellectual property.

Supplier relationships —

How reliable are your suppliers? Do you have secondary vendors lined up and ready to go in case a primary supplier fails or your supply chain is interrupted?

A dependable base of suppliers is a must-have for many businesses, particularly manufacturing and similar companies. If your supplier base isn’t in top shape, take time to investigate new vendors and shore up existing relationships.

Customer base —

A broad, diverse customer base is preferable to having just a few large customers. Your company could sustain a significant hit to sales if a big customer fails or goes elsewhere.

Consider your customer mix. Are your relationships secure? Do you have contracts in place where possible? Is there a way to diversify?

Also, be sure to introduce key managers to your customers so that the relationships are solid and deep within the business. You want your customers to feel embraced by the entire company, not just by you.

Of course, there are other elements that drive value — location, reputation and quality, for example — and the influence of each driver varies by type of business. Whether you’re planning to sell your company in a few years or are simply interested in increasing efficiency or reducing risk, your company’s value drivers are worthy of attention.

We can help you identify and leverage your company’s value drivers. Contact us to discuss next steps.