Whether you are focused on growing your company in the present or preparing for your eventual exit, your success on both fronts hinges on maximizing the value of your business.

Every business owner will eventually exit – whether it’s planned or not.

Savvy business owners recognize this truth and work towards closing the gap between the value of your company today, and the forecasted amount needed to meet your financial objectives upon and after your exit. That’s where the exit strategy comes in – growing your company today to maximize its value upon exit.

Once the “why” of maximizing the value of your business is understood, the next logical question is: HOW do I do it? Implementing a couple of foundational methodologies, including identifying your value drivers and then optimizing them, is a great place to start.

Value Drivers
Knowing and managing what drives the value of your business is essential to attain your target value. Value drivers are those elements of your business that make your product or service unique, differentiate you from your competition, fill the need that is the basis for your business – your why – and that create value for your customers and prospects.

Following are the eleven most common value drivers:

• Stable, high-performing workforce
• Systems that sustain the growth of the business
• Diverse, stable customer base
• Good facility appearance
• Realistic growth strategy
• KPIs/effective and documented financial controls
• Business overview – legal audit, banking relationship, etc.
• Financial growth – cash flow, profitability, revenue, low debt
• Attractive business sector
• Protected technology/IP
• Having an exit plan

What should you do with this list?

1. Identify the value drivers that most clearly apply to your business.
2. Determine which may be lacking and need your attention.
3. Prioritize the three that most need attention.
4. Define changes you need to make to create positive results.
5. Commit to an hour or two a week to work on value drivers.
6. As you get areas of your business in order, move on to other value drivers that can improve with some adjustments.

Take It a Step Farther: The Value-Based Management Concept
Since maximizing the value of your business is the focus of a good exit plan, it logically follows that a focus on value optimization should be built into your overall business strategy and how you run your business.

Leading management consulting firm, McKinsey & Company, developed a model for a comprehensive approach to value-based management (VBM), based on the concept that value is the precise metric upon which an entire organization can be built. The value of a company is determined by its discounted future cash flows – investing capital so that returns exceed the cost of that capital. This approach extends to using the company’s key value drivers to inform both major strategic and everyday operating decisions.

This management model begins with the company embracing value optimization as their ultimate financial objective. These steps should follow:

1. Identify and prioritize value drivers specific to the company.
2. Develop a strategy to optimize value.
3. Translate this strategy into short- and long-term performance targets, defined in terms of the key value drivers, and tailored to distinct levels of the company.
4. Develop action plans and budgets to define the steps that will be taken over the next year to achieve these targets.
5. Put performance metrics and incentive systems in place to monitor performance against targets and to encourage employees to meet their goals.

Strategies, performance targets, and processes must be consistent throughout the organization and structured to achieve maximum value on a continuing basis. Companies also need non-financial goals around product innovation and both customer and employee satisfaction. These objectives don’t contradict value optimization but rather, serve to establish values and guides for the organization and its culture.

How Value-Based Management and Exit Planning Work Together
VBM is the melding of a value creation mindset and the management processes and systems that are necessary to translate that mindset into action. Alone, neither element is sufficient, but together, they can have a tremendous and sustained positive impact on a business which leads to a successful exit – on your terms.

All owners will eventually exit their business. Logically, the sooner you start to plan, the greater your success. Wherever you are on this path, I would welcome the opportunity to help you identify and prioritize your unique value drivers, assess whether VBM may be a fit for your business, or discuss starting or building out your exit plan. Contact me for a complimentary consultation.

Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting along with expertise in financial reporting, income and estate planning, and tax compliance makes him a valued and trusted advisor to his clients.

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