Value Drivers Are Key to a Successful Exit – Wrapping Up the Top Ten

After completing assessments and documentation, choosing her exit date, and working with me to develop an exit strategy, one of my clients is now in the process of executing that strategy. Her primary focus at this stage is on evaluating and optimizing the performance of the value drivers that impact her business. Enhancing performance in these key areas will increase profitability, reduce risk, and ensure the sustainability and growth of her business, which will help her get top dollar when she sells.

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. In a previous blog I reviewed two of the top ten value drivers that are common to most companies and in another, the next four. Now, we’ll wrap up with a look at the final four value drivers that are applicable 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. The final four drivers focus on your customer base, financial controls, technology and your high-level business overview. Let’s dive in.

Established, Diverse Customer Base

Your customer base impacts your business in many areas. Revenue and profitability are impacted, of course, by their purchases. But the stability of your customer base impacts your areas such as credit worthiness and your costs. As with employees, it is less costly to retain existing customers than to try to replace them if they are lost. But it’s also important to attract new customers and have some diversity in the mix. Ask and answer the following questions:

  • Is your business able to retain the strength of customer relationships, independent of the owner?
  • How stable is your customer base? How has this impacted your credit worthiness, either positively or negatively?
  • What is the optimal mix of customers needed to sustain the business?
  • What percentage of recurring revenue comes from existing customers?
  • What are you doing to encourage growth trends among existing customers?
  • What new opportunities have you identified with existing customers?
  • How much customer turnover do you have?
  • Can you do more to retain existing customers?
  • What steps are you taking to attract and retain new customers?
  • Is most of the revenue that comes from existing customers dependent on a small percentage of customers?
  • If you are highly dependent on a few customers for your revenue, what are the effects of this economic dependency?

Documenting the answers to these questions is the starting point to understanding the overall picture of your customer base, how to strengthen it, and what red flags are unique to your business.

Effective, Documented Financial Controls

A good financial structure must be documented to be relevant. At any time, you should be able to pull accurate, reliable reports that provide you a snapshot of the state of your financials, so that you can make timely adjustments to stay on track with your goals. Review the following:

  • Do you have financial systems and documented processes in place that produce accurate, reliable, timely reports?
  • Is the timing of your financial reporting optimized?
  • Are you able to understand and interpret your financial reports and make changes as needed, based on those interpretations?
  • What are your Key Performance Indicators? What does your “Dashboard” look like?
  • How do you use Leading Indicators?
  • How do you use Trailing Indicators?
  • What are your Key Financial Ratios?
  • Are you current and in compliance with all tax and reporting requirements?

Protected Technology/IP

Having technology in place that meets the needs of your business is essential. Protecting that technology and the data it houses is critical. Technological vulnerabilities can be extremely costly, even temporarily shutting your business down. Likewise, it’s important to protect what you create. Consider the following:

  • Do you have trademarks, patents and copyrights registered or applied for as appropriate?
  • How do you protect proprietary processes to generate business?
  • What are your intangible assets and how are they protected?
  • What are your barriers to competition?
  • Do you have technological competitive advantages and how are those protected?
  • Do you have an effective website and internet presence? Are your sites and email secure?
  • Is your information technology current with leading standards for your industry?
  • What, if any, are your proprietary products or services and how are they protected?
  • For any contracts that apply to your company, are they consistent with current law and enforceable and do they accurately reflect the way you do business?
  • Do you have a policy regarding Intellectual Property rights/ownership/sharing/licensing?
  • Do you have all necessary licenses, permits, and regulatory approvals in place and are they current?

Business Overview

Don’t lose sight of the big picture elements that impact your business.

  • Do you have a current business plan and long-term forecast?
  • Have you recently reviewed your vision for the company?
  • What is your long-term strategic plan for the business? Does it align with your vision and is it reflected in your business practices and procedures? Can it be passed along to a new owner?
  • Do you have a beneficial, well-managed banking relationship?
  • Do you have a contingency plan to navigate through external factors that may affect your business?
  • Is your business party involved in Related Party transactions or arrangements and is there any potential for conflicts of interest or the appearance thereof?
  • Have you had a legal audit? A legal audit is a due diligence process to minimize business risk by identifying gaps in regulatory compliances and may include a review of the choice and structure of the business entity, actions and supporting documentation of the board of directors, methods of marketing and distribution, insurance coverage, and risks/potential for litigation.

Preparing your company for sale or transition takes years if you intend to obtain maximum value for the time and arduous work you’ve put into your company. Ongoing assessment of your value drivers is integral to its success and will not only improve the value of the company but will yield a profitable and more efficient company in both the long and short term.

To get started on your own exit plan, complete our easy, online Exit Planning Assessment and Value Driver Analysis. Then contact me to schedule a complimentary review of your assessments and to discuss identifying your most critical value drivers, assessing their status, and developing a plan to address those that need improvement.

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