Simon Bedard, CEO at Exit Advisory Group, an advisory firm that focuses on mergers & acquisitions, exit strategies and business valuations.
Building a more valuable company requires a strategic and methodical approach. It’s about making informed decisions that unlock your business’s growth potential. From identifying your market readiness to mitigating key person risks, each step plays a crucial role.
I have seen firsthand how strategic actions can significantly impact a company’s value. At Exit Advisory Group, we have helped numerous clients achieve remarkable outcomes by focusing on key value drivers.
One particular case involved a leading supplier of fire detection products. Initially, we provided a valuation report and later offered recommendations to build value. Over a five-year engagement, they implemented these recommendations, resulting in more than a 100% increase in value, which culminated in a successful business sale. This experience highlighted the transformative power of a well-executed value growth strategy.
For businesses looking to increase their value beyond just top-line growth, here are my recommendations.
Market Readiness
Being prepared to capture market opportunities is crucial for scaling your business. Market readiness involves having the right resources, systems and processes in place to respond to market demand effectively. Here are steps to ensure your business is market-ready:
• Scalability: Assess whether your current operations can handle a significant increase in demand. Invest in scalable infrastructure that can support growth without compromising quality or efficiency.
• Team Preparedness: Ensure you have the right talent and that your team is well-trained to manage growth. A capable and adaptable team is essential for sustaining and capitalizing on market opportunities.
• Process Optimization: Streamline processes to improve efficiency and reduce bottlenecks. Efficient processes reduce costs and enhance the ability to meet customer demands swiftly.
Recurring Revenue
The appeal of predictable sales through subscriptions or contracts is not just a trend; it’s a fundamental shift in how modern businesses anchor their revenue models. In fact, the subscription economy is projected to balloon into a massive $1.5 trillion industry by 2025.
This stability isn’t merely reassuring—it’s quantifiable, as businesses with recurring revenue can command higher valuations due to the reliability and predictability they offer. According to the Zuora Subscription Economy Index, subscription businesses have grown 4.6 times faster over the past decade compared to the S&P 500.
• Subscription Models That Work: Explore subscription-based models tailored to your industry. Whether it’s software as a service (SaaS) or membership programs, these models lock in future income and stabilize cash flow.
• Customer Retention Strategies: Develop loyalty programs and consistently deliver value to retain subscribers. Engaged customers are more likely to renew subscriptions and advocate for your brand.
• Flexible Plans: Offer various subscription plans to cater to different customer needs and preferences. Flexibility enhances customer satisfaction and retention rates.
• Automated Billing Systems: Invest in reliable billing systems to ensure smooth and timely payment processes. Automation reduces administrative burdens and enhances cash flow predictability.
Key Person Risk
Key person risk arises when a business relies heavily on specific individuals, including the owner or key employees. This dependency can pose a threat to the business’s stability and continuity.
For example, we worked with a client in the electrical infrastructure sector whose business was highly dependent on a few key individuals, which posed significant risks. We worked with them to develop a succession plan, cross-trained employees and documented critical processes. These steps not only mitigated key person risk but also enhanced the overall value of the business, leading to a successful acquisition by a publicly listed company.
Mitigate key person risk with these strategies:
• Succession Planning: Develop a succession plan to ensure the smooth transition of responsibilities in the absence of key individuals. Identify potential successors and train them adequately.
• Cross-Training: Train multiple employees to handle critical tasks to reduce dependency on any one person. This ensures operations can continue smoothly even if a key individual is unavailable.
• Documentation: Document key processes and knowledge to ensure continuity even if key personnel leave. Comprehensive documentation serves as a valuable resource for training and maintaining standards.
Supplier Diversification
Business stability often hinges on the robustness of its supply chain. Relying solely on one supplier for essential supplies is a recipe for disaster.
During the Covid-19 pandemic, many businesses experienced disruptions due to their over-reliance on a single supplier. For example, one of our clients in the energy sector faced significant supply chain issues. Diversifying their supplier base and establishing backup agreements ensured continuity and stabilized their operations during uncertain times.
Having a range of suppliers can act as an assurance against any potential disruptions brought about by unforeseen circumstances. Here are ways to not rely too heavily on one supplier:
• Supplier Evaluation: Regularly evaluate suppliers based on reliability, cost, and quality. When possible, diversify your suppliers.
• Backup Agreements: Establish backup agreements with alternative suppliers to ensure continuity.
• Supply Chain Management: Implement robust supply chain management practices to monitor and mitigate risks.
Conclusion
Building a more valuable company is all about identifying the risks and opportunities within your business. By implementing the above strategies with a robust financial analysis, you can drive a much stronger multiple and valuation of your business and secure the deal that you deserve.
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