Assessing Value Drivers for a Successful Exit

My recent blog, Prioritizing Value Drivers in Your Exit Strategy, reviewed the general process of developing an exit plan and beginning to execute that strategy. The process involves optimizing your 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 the performance of your company in these key areas will increase profitability, reduce risk, and ensure the sustainability and growth of the business. It will also help get top dollar when the business is sold. There are various approaches to optimizing value drivers, which is a multi-year process. Most often, it’s wise to prioritize which value drivers need work by determining which are working and why, and which are not working and why not.

Previously, I reviewed two of the top ten value drivers that are common to most companies.  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. Let’s review four more.

Attractive Business Sector

This value driver considers the industry your business is in and how your business performs within that industry. Look at both the big picture and finer details within your company. This is an area in which it’s important to continually advance. Consider and document these factors:

  • Is your industry healthy in general?
  • Is it currently in a period of high growth or expansion?
  • Do you have competition within the industry?
  • How much diversity is there within the industry sectors served?
  • What product or service are you selling today?
  • Is it the same as what you were selling five years ago?
  • Is it a product or service for which there will likely be long-term demand?
  • Do you have plans to expand your offerings?
  • Where do your sales come from – individuals or businesses?
  • Do you have internet sales? Are you optimizing your online presence?

Good Facility Appearance

The appearance and condition of your facility sends a message about who you are and how you do business. If your people take pride in the appearance of the facility, it’s an indication that they take pride in their work. Your facility’s condition should be consistent with the asking price. Assess and document the following elements.

  • Is your facility clean, neat, and organized?
  • Are workstations positioned and organized to optimize workflow?
  • Are you optimizing the overall use of your space?
  • What is the condition and useful life of your existing assets?
  • What are your maintenance costs?
  • Are there maintenance needs that have been neglected?
  • Do you have a plan for employees to actively participate in keeping the facility clean and organized?
  • If your facility received a surprise audit or inspection, would you be ready?

Solid Financial Structure

Your financial structure encompasses cash flow, revenue, profitability, growth, and debt. This value driver is obviously one that will need constant monitoring and attention. To do so, you’ll need to ensure that you have and understand all key financial documents. Review and document the following aspects of your financial structure:

  • Do you have positive cashflow? And do you have enough cash?
  • If you have excess cash, how are you managing it?
  • Do you project, or forecast, cashflow and are your projections accurate?
  • Do you have a true budget and are you able to perform within that budget?
  • Where do you stand in terms of revenue and what percentage of revenue is recurring?
  • Where do you stand in terms of profitability, including Gross Margin and Net Margin growth?
  • How does your revenue and profitability compare to others in your industry sector?
  • Do you have proper capitalization such that you are able to maintain a low level of debt?

Realistic Growth Strategy

Your company’s growth strategy is key to meeting your eventual financial objectives upon your exit. And it will affect many value drivers. Your company’s growth history and projections will obviously be a factor in the salability of your company when you exit. Evaluate and document the following points that impact growth:

  • What does your growth trend of the previous three years indicate about your company’s performance?
  • How does your rate of growth compare to other businesses in your industry sector and the marketplace?
  • Do you have favorable, stable relationships with vendors and suppliers?
  • What is your market position?
  • Is there good brand awareness?
  • What is the level of customer satisfaction? If there are problems, what are you doing to resolve those?
  • How is your company perceived? Does your company have a good reputation in the marketplace and within the industry?
  • Do you foresee, and are you seeking, new markets?
  • How reliable is your product or service?
  • Are you seeking or developing new product or service opportunities?
  • Do you have good, solid relationships with your banks/financial institutions?
  • Do you have short and long-term strategic and tactical growth plans in place?

In my next blog I’ll address the remaining four value drivers of the “top ten.” In the meantime, complete our easy, online Exit Planning Assessment and Value Driver Analysis. Then contact me to schedule a complimentary review of your assessments or to discuss how I can help you start developing your own exit strategy.

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