Commonly neglected by small businesses, increasing the market value of a company should be a priority for every management team. Even larger businesses with great management and a long-range plan often fail to focus on value accretion. Prioritizing market value growth impacts the management team’s focus.
Investors often seek two complementary characteristics: current income and capital gains. Business leaders ought to pursue an increase in market value in conjunction with current income. How? Here are two important areas of focus.
Build a Successful Team
Market value is significantly impacted by the quality of the management team. Small companies are often built around a single founder or family. When management is passed from the founding leadership, a successful transfer involves a qualified, professional team. Emphasis should be placed on forming a skilled, talented, and innovative group of staff. Reliance on a single leader is a risk to the company and a red flag to potential buyers. Both strategic and financial buyers look for depth of management when considering an acquisition.
Good succession planning is of vital importance. A potential buyer has to be assured that the current owner/management can be adequately replaced. A sure way to accomplish that is to replace yourself before selling or alternatively develop a sound succession plan.
Molding a capable team that will be ready to run the business is a necessary component of succession planning. Team-building involves recruiting and retaining top talent. High performing teams add to the sale value of a company. When evaluating the strength of your talent pool, consider the question: “Does my management team have the leadership skills to develop a thriving company without me?” If your team portrays this image, potential buyers can be confident that the company will not stumble without the owner at the helm.
Develop & Follow Operating Procedures
High-performance organizations are institutionalized. What does this mean? Institutionalized businesses develop and consistently follow standard operating procedures (SOP). When incoming staff members are always trained according to the SOP, the success of the management team shifts from one or two members to the holistic team. Of course, successful management then depends on the proper development of SOPs.
Standard procedures remain constant through the ebb-and-flow of staff. Thus, acute, efficient, understandable processes and procedures ensure that outside and inside interactions with the organization are consistent. Furthermore, organizations built on the firm foundation of cutting-edge technology, systems, and processes have a competitive advantage. Once more, evaluate the competency of your management team to develop and implement the SOPs.
Flynn & Company: CPAs & Business Consultants
Knowing the value of your business at any given time is valuable insight. A business valuation is an extremely useful tool that can be applied throughout the life of a business to understand current value and identify techniques to increase future value.
Is your business considering purchase or sale, financing, divorce, partnership buyout, merger or acquisition? These situations are but a few examples of situations when a business valuation is necessary.
Flynn & Company is dedicated to creating innovative and practical solutions to help you achieve greater monetary gain. We understand that a crucial component to future success is market value. Our business valuation services are designed to guide your company into efficiently increasing value. We are big enough to provide expert services – but not too big to give you individual attention. Contact us today to begin a conversation at (513) 530-9200 or via our online form!