While financial performance plays a key role when it comes to valuing a business, there are many other qualitative factors that need to be considered when you are looking to increase value in your business. The image to the right highlights the 8 Drivers of Value you need to consider in your business.
Here are some examples of questions you can ask yourself for each driver:
- Financial Performance - am I promoting the right services at my firm, at the right prices, in order to get to the profits needed? Do my accounting practices reflect the overall level of professionalism in my business?
- Growth Trajectory - is my company keeping up with industry trends in terms of process, products, pricing and quality of employees?
- Diverse Relationships - do I rely so heavily on one employee, customer or supplier that without them I would put the business at significant risk?
- Cash is King - am I creating sufficient cash flows to support day to day needs of the business?
- Recurring Revenue - how can I create consistent cash flows with recurring orders versus starting from scratch each month?
- Market Control - what is the “why”, or reason my company exists, and how am I delivering on that in a way that my competitors can’t
or won’t?
- Customer Satisfaction - how have I trained and empowered my employees to handle customer complaints or share customer praise to make sure we are doing the right things and making it right when we fall short?
- Delegation - How am I creating advancement paths to retain key employees for their best interest, but also so that the business is not as dependent on me on a day-to-day basis?
Whether you plan to sell in the near future or want to build value for your continued ownership, these questions are helpful tools to review yourself or with your leadership team on a quarterly basis, and in-depth on an annual basis. It is important to set goals and KPIs, or key performance indicators, for each driver so you and your team know what success will look like when you get there.
Cathy is the president of Capital Valuation Group, Inc., headquartered in Madison, Wisconsin. Capital Valuation Group has been helping business owners across the country understand, increase and unlock the value of their businesses for over 40 years through keynote speaking, valuation analysis, determining damages and providing expert witness testimony. Cathy welcomes conference and event speaking inquiries and can be reached at cdurham@capvalgroup.com.