Given the current economic climate, where we are seeing increased M&A activity within our client base, it is important for business owners to start to think about and focus on activities that they can undertake to enhance the value of their business. One never knows when they might be approached by the “perfect” buyer and so it is critical they are ready and have their business in a position to maximize value.
So what is a business value driver? From a valuator’s perspective, a business value driver is a critical factor that when, either strengthened or weakened, is going to have a direct impact on the purchase price that a buyer would be willing to pay for a business. And when we evaluate the different business value drivers, we can generally break them into two distinct categories that link to how most businesses are valued in the marketplace – (i) profit maximizers and (ii) risk minimizers. That is, the more that you can increase the profits of the business the more you can increase value and, likewise, the more you can minimize risk the more you can increase value.
Over the next little while, we are preparing a number of blogs to identify some specific value drivers and highlight what business owners can do to focus on those drivers and enhance the value of their business. In doing so, we will first focus on those that we would classify as “controllable” value drivers or those that are under the control of the business owner. Unfortunately, there are also “uncontrollable” business value drivers (i.e. the economy) over which most of us have no control but still impact the value of a business. We will discuss how to manage these risks so your business can respond to external pressures and mitigate the negative consequences on value.
We hope that you will enjoy our little series and that you will find some useful tips to enhance the value of your business.