IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Allan VanderHamm of Berntson Porter & Company, PLLC (www.bpcpa.com).
3 Things That Can Build Future Business Value
Building business value is a core reason you wake up and run your business every day. As your business grows in value, it can position you to find new clients; keep current clients happy; support your employees financially and intellectually; and provide a nest egg for yourself, your family, and any charitable organizations you work with.
Many business owners find that there’s a certain point at which they don’t know how to grow the business any larger. They’ve done everything they can think of, but the business plateaus. These plateaus can create big challenges for owners who will one day rely on selling or transferring their ownership to fund their post-exit lives. What can you do to help yourself overcome these plateaus?
Hire or Train Next-Level Management
Perhaps the most important driver of business value is the presence of a next-level management team. Next-level managers are managers who know how to grow companies beyond their current levels. Oftentimes, next-level managers come from companies that are larger than yours. Working in those larger environments usually gives those managers the experience necessary to build your company’s value. They can also be a catalyst for rapid growth in your company.
Alternatively, you can train your current managers to begin taking more responsibility for some of the important tasks that you do. For example, if your current management team has been growing the company at or beyond the goals you’ve set, you might consider giving that team more responsibilities.
Regardless of which path is right for you, you should seriously consider installing a next-level management team if your goal is to build future business value. With greater value, you’ll have more options available and subsequent goals can be easier to achieve.
Establish and Document Operating Procedures and Systems
Both external and internal buyers benefit from turnkey operations compared to rebuilds. Establishing and documenting your company’s procedures and systems that contribute to profitability and cash flow can strengthen performance and highlight areas for potential growth, which can increase your business’ overall value.
For example, if your company can install ISO 9001:2015 standards, you can more adequately demonstrate your company’s ability to consistently provide goods and services that meet or exceed the requirements set forth by customers and regulatory bodies. Likewise, if your company has a unique value proposition, new owners will likely want to sustain it efficiently so that they can continue the growth trend. Muscle and brain memory are less valuable than written and standardized procedures when it comes to building future business value.
Diversify Your Customer Base
Much like next-level management, a diverse customer base provides strength in numbers. If your company’s profitability and cash flow are reliant on just a handful of customers, your business is likely at risk. If one or two of those customers were to leave, it would hurt profitability.
Diversifying your customer base is much easier when you have both next-level management and documented processes. However, finding new markets to which you can introduce your company’s value proposition is a key aspect of building business value, and it’s something to consider right now. Ask the next-level managers you recruit or develop to identify creative and competitive strategies to expand into desirable markets, then document the processes used to achieve those goals. This is how we leverage one value-building technique with another, making the end results greater than what you might achieve if you only focus on one area.
If you’d like to discuss ways you can begin taking steps to build your future business value, please contact us today.
Many business owners and executives want to increase business value over time, but they aren’t sure how to get started. Are you one of them?
We at Berntson Porter have a proven process to help you do it! The first step is to complete a free 15-minute assessment of your business that reveals how effectively your company follows best operational practices. You will immediately receive a report that shows you the top three areas needing improvement compared to your industry peers. You will also discover the value gap between the current enterprise value of your business compared to what the value could be after making those improvements.
With these results in hand you’ll be in a better position to move forward with more comprehensive planning — and that’s where we can help! We work with our clients to develop a comprehensive analysis and executable growth plan tailored to their individual needs that will address operational inefficiency to build a more valuable and sustainable business.
Allan VanderHamm, CPA, ABV, CVA, CM&AA, CExP, is a Principal and the Director of Business Transition and Valuation Services at Berntson Porter & Company, PLLC, a consulting and planning CPA firm in Bellevue. Allan’s practice focuses on designing and implementing comprehensive owner exit plans, completing successful merger and acquisition transactions, and preparing effective business valuations. If you have questions about the content of this article or any area relevant to Mr. VanderHamm’s expertise please contact him at (425) 454-7990 or firstname.lastname@example.org.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.