Selling a Business| Mergers and Acquisitions

Value Enhancement

Selling a Business| Mergers and Acquisitions

Value Enhancement

What is Value Enhancement and how does it make a difference?

When it comes to companies, value enhancement is all about increasing the relative value. Of course, any business owner would want to be on the high end of the curve to garner the highest valuation for their company at the time of sale.

Business value is the estimated health and wellbeing of a business by measuring concrete and abstract elements such as monetary assets and utility and employee, customer, supplier, and societal value. In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long run. Business value expands the concept of value of the firm beyond economic value to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms.

How does Business Valuation work?

Improving the balance of assets, revenues, cash flows and margins of a business are some obvious value enhancement tools and techniques, but these can be difficult to accomplish. Depending on the industry and market, these value enhancements may be beyond the control of the business owners

Who benefits from a Business Valuation?

Organizations of any size and from any industry can benefit from Value Enhancement. It’s a summary of profit and loss and helps businesses strategically plan to go forward and ultimately enhance the overall business value.

Strategies to maximize business valuation.

Selling a Business| Mergers and Acquisitions

Selling a Business| Mergers and Acquisitions

Qualitative Factors in Selling a Business

Improving the balance of assets, revenues, cash flows and margins of a business are some obvious value enhancement tools and techniques, but these can be difficult to accomplish. Depending on the industry and market, these value enhancements may be beyond the control of the business owners

Consisting operating procedures and systems is a competitive advantage that increases the amount of energy that can be devoted to improving the business and its profitability. A proven operating strategy assures buyers that the business is positioned to increase in value

Businesses that are overly reliant on the founder/owner or a key employee are less valuable to prospective buyers because it is unknown how the company will perform if those people no longer manage or work for the business. Wherever possible, the business should emphasize developing operating systems and procedures that do not rely on a key individual to keep it running smoothly. This strategy can also apply to overreliance on a few key customers or suppliers

Other Factors Affecting Business Value Enhancement

Macro factors while impactful are largely outside the control of management and thus we will focus on critical micro factors within management’s control.

  • EBITDA size
  • Revenue trends
  • Profit margins
  • Customer concentration
  • Industry concentration
  • Strength and depth of the management team
  • Competitive advantages
Selling a Business| Mergers and Acquisitions

Financial Controls for Businesses

For successful businesses, part of managing risk effectively lies in developing and enforcing effective financial controls. These internal controls not only help protect a company’s financial assets but ensure staff are complying with policy, procedure, and the law.

Financial controls provide a framework for managing cash flow, allocating resources via budgeting, and guarding against potential threats such as fraud and theft. Improve operational efficiency, enhance profitability, simplify resource management, improve accountability and engagement at all levels and streamline the reporting and auditing processes.

Capital Access

Capital allows a business to invest in the best tools to run its operations to remain competitive. Entrepreneurs with existing capital through their assets, good credit and loans with reasonable interest rates have higher success rates than those without. Buyers need to access capital when starting or growing a business

Benefits of a Diverse Customer Base

Revenue comes from several clients or customers. Not just two or three and preferably comes from multiple sources other than your primary service. Expand your public relations efforts, request referrals and testimonials, expand into new markets, expand your horizons, experiment with cold calling, form strategic alliances, emphasize networking, and make your virtual audience a real client.

Proven Business Growth Strategy

Some common growth strategies in business include market penetration, market expansion, product expansion, diversification, and acquisition. This growth strategy involves selling more of a company’s existing products or services to its current customer base. There is a vertical growth strategy when applied it takes over a function previously held by a supplier. The organization grows by taking more control over their product or service

Resilience through Sustainable Cash Flow

Sustainable cash flow refers to a continuous stream of revenue. Although corporations are in business to make money, they also encounter various expenditure like rent utilities, payments to suppliers and salaries. There are three cash flow types that companies should track and analyze to determine the liquidity and solvency of the business: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. All three are included on a company’s cash flow statement.

Impact of Human Capital

Human capital has a substantial impact on individual earnings. Education, training, and health are the most important investments in human capital. Types of human capital are Creativity, Leadership, Mental Health, on the job training, People skills and Physical health. It also refers to an individual’s qualities deemed valuable to the manufacturing process.

Advantages of a Product Differentiation Strategy

Product differentiation is what makes your product or service different and more appealing to customers. It gives you a competitive advantage in the market. It is important to differentiate your product in any industry. The goal is to show potential customers what you can offer that other businesses cannot and why that’s valuable to them. It is a marketing strategy that businesses use to distinguish a product from similar offerings on the market.

Role of a Financial Advisor

With a business valuation in hand, your financial advisor can create a comprehensive financial strategy long before you plan to sell. In addition to building an investment portfolio to maximize its return and minimize risk, the advisor can also address other items.

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