In a recent article entitled “Economic Downturn Gives Owners Time to Work on Value Drivers,” my good friend Eric Donner, Managing Member of Regal Wealth Advisors reviews how important value drivers are to maximize a business’ selling price.
He goes on to point out that it is the work of the owner – not employees – to create and to nurture them. Value drivers include:
• A stable and motivated management team.
• Operating systems that improve sustainability of cash flows.
• A solid, diversified customer base.
• A realistic growth strategy.
• Effective financial controls.
• Stable and improving cash flow.
Due to the freeze in credit markets and a slowdown of M&A, today’s economic environment – for the foreseeable future – gives owners time to install and/ or improve value drivers in their companies. It also gives them time to demonstrate the sustainability of the value drivers they create. Buyers want to know that success or growth charted in one year can be maintained over several years. They bank on (and pay for) a company’s potential to grow, so they look very carefully at how long a company’s value drivers have yielded positive results.
Experienced owners know that change takes time. Really experienced owners know that positive results from those changes take even longer — likely longer than even they expect.
Regardless of when you might sell, it makes good sense for owners to concentrate on those elements of their businesses that create more cash flow, more sustainability, and more future value. After all, isn’t this why you’re in business?
A great place to start is to evaluate how you’re doing currently with respect to each value driver and then put a plan in place to improve each one – steadily and continually – over time. Then, when it finally is time to sell, you’ll be assured a handsome return for having built something of lasting value.
