Five Things You Can Do To Build Value
Owners Can Improve Cash Flow, Reduce Risk, and Generate Growth
Successful exit plans require building long-term value, and Ron Stacey explains how business owners can begin to do that today by improving cash flow, reducing risk, and accelerating growth.
Simply put, value (and price) can be maximized by 1) improving cash flow, 2) reducing risk, and 3) growth (the buyer buys the future.).
Here are five areas to address for building value:
1) Diversify: Concentrations of any kind are bad. Diversify the customers, suppliers, and the product or service offerings. Also, eliminate any key dependencies in operations, including those â€śindispensableâ€ť employees. Size usually helps in this area, so see item 5.
2) Increase Margins and Cash Flow: Anything less than 10% at the operating level needs attention. Focus on the value proposition to the market (revenue) for opportunities to improve pricing and be a ruthless cost cutter. Efficiently manage working capital and fixedÂ investment.Â Proprietary content ofÂ anyÂ kindÂ can improve margins and reduce risk. Look for ways to build proprietary advantage.
3) Build out a Management Team: A strong team that can run the business greatly broadens the universe of potential buyers. The more interest there is, the more value. High values typically come from professional investors with large pools of capital to invest. Avoid having to sell a job along with the company.
4) Get Audited Financial Statements: Nothing brings more credibility to the numbers than a set of audited financials with an accounting opinion on the first page. Moreover, the discipline associated with this step will ensure strong internal financial controls essential to good management.
5) Grow: Always be on the lookout for new opportunities, new products, new markets. Ensure that the current offerings are getting proper sales and marketing effort. Remember, value is driven by future cash flow, not what happened yesterday.
These points may seem obvious, but sometimes just getting a focus on the obvious can dramatically improve results, and value. Important too is the emphasis that the leadership and management places on the importance of value creation. And, lastly,Â communication,Â planning,Â andÂ persistenceÂ areÂ theÂ linchpinsÂ toÂ driving value.
Ron Stacey is Managing Director of Legacy Advisors.Â He has a long history of corporate finance transactional experience covering corporate valuations, fairness opinions, debt and equity capital placement, leveraged buyouts, management buyouts, restructurings, re-financings, merger and acquisitions advisory. Reach him at