Assessing and Managing Value Drivers

Exit planning is focused largely on optimizing the value of the business, which means you need an understanding and a focus on value drivers. Why is this necessary?

The initial steps in an exit plan are straightforward:

  1. Choose an exit date.
  2. Document foundational information about the company and your exit objectives.
  3. Obtain a current valuation of the business.
  4. Determine what the business must be worth upon exit to meet financial objectives.

The last two steps identify the gap – the amount between the two values which is the basis of the exit strategy you develop to reach that ultimate value goal. Next, the process begins to execute that strategy.

That process involves optimizing the company’s value drivers – business systems that generate either recurring revenue or financial efficiencies from an established, growing, customer base and those internally controlled activities, capabilities, or qualities that add worth to the company.

Enhancing performance in these key areas will add worth to your business, which includes increasing profitability, reducing risk, and promoting growth consistent with your strategic goals. Optimizing performance will not only help you get top dollar, should you sell to a third party, but will ensure the sustainability and growth of your business if you transfer to insiders.

Clients often ask, “How do I know which value drivers to focus on first?” The answer depends on several factors.

  • Most often, I believe it’s wise to prioritize which value drivers need attention by determining, with input from your leadership and financial teams, which are working and why, which are not working, and why not. As you assess each value driver, consider the elements that influence the performance of that value driver, from both a qualitative and quantitative perspective. Then develop an action plan to address shortfalls.
  • I sometimes advise business owners to address those that are easiest to tackle, make the improvements needed and mark those off the list, except for periodic check-ups. Other value drivers will need constant attention, monitoring, and adjustments over the long haul.
  • For some companies, it works to start at the beginning of the top ten value drivers that seem to be common to most businesses.
  • Value drivers can vary from company to company. If you’re unsure, an exit strategist can help you pinpoint those that impact yours.

Following are the top ten value drivers, that are most likely to influence your company’s worth:

  1. Stable, high-performing workforce and motivated management
  2. Documented systems that sustain the growth of the business
  3. An established, diverse, customer base
  4. A facility that is consistent with the asking price for your business in terms of its appearance, condition, technology, equipment, and organization
  5. A realistic growth strategy
  6. Effective, documented, financial controls
  7. A good business overview in terms of audits, bank relationships, etc.
  8. A solid financial structure in terms of growth, cash flow, profitability, revenue, and debt
  9. Attractive business sector including a positive standing within the industry and diversity of industry sectors served
  10. Protected technology and intellectual property

Preparing your company for sale or transition, and optimizing its value, is a multi-year process. Regular attention to and ongoing assessment of your value drivers is integral to your success, and will not only improve the value of the company but will yield a profitable and more efficient business in both the long and short term. Schedule some time at least monthly to focus specifically on your value drivers and their performance.

I’d welcome the opportunity to help you identify your most impactful value drivers, assess their status, and develop a plan to address those that need improvement. Contact me to schedule a complimentary review of your value drivers or to discuss how I can help you start developing your own exit strategy.

Bob Zarlengo is a certified exit strategist and CPA. With more than four decades of experience in public accounting, his 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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