Making better investment decisions
Strategic planning is critical to making better investment decisions and increasing business value.
Growing in value with purpose
That extra turnover might be very low margin and require significant extra investment, which could actually reduce profitability and value. With this in mind, it’s crucial to understand where growth truly lies for the business.
Unlocking value means enabling change across all aspects of the business: technology, talent, sustainability, while remaining agile and adaptable. There are four key pillars of influence to help you do this. These pillars need to be monitored and regularly reviewed to enable the business to adapt as markets evolve.
Products and markets
What products are you selling and who are you selling them to? To drive growth, it is likely you’ll need to find new products or new markets, or both.
Business efficiencies (including processes and infrastructure)
If costs are not monitored and kept under control, it will quickly erode value and lead to further inefficiencies.
How will growth be financed? Sustainable growth needs to be properly financed, usually through a channel other than only working capital.
Do you have the right people with the right skills in the right roles to drive growth?
Growing value means playing to the strengths of the business by focusing on those areas that can deliver most profitable growth, which is usually the core business. Focus on what you are good at and think how you can do it even better or more often. While it might be tempting to expand into a totally new market, or maintain a wide range of products or services, there is a risk it could divert much-needed capital from other areas of the business that are more profitable.
Budgeting is critical. First, you need to have a forecast in place that people believe is achievable; and second, you should also include the steps you need to go through to deliver that budget. It may mean recruiting additional staff, for example. In the short term, it might cost you more, but the extra cost may well be outweighed by the additional value it delivers over the medium term.
People should be at the centre of your plans. Growth doesn’t happen by chance – it’s your people who deliver it. Everyone needs to understand what the business is trying to achieve and how it impacts them, and communicating the vision and strategy, engaging people with it and incentivising them to play their part in achieving it are vital.
Marketing and brand awareness are also important, for both internal and external audiences. It’s all part of engaging people with the strategy and helping them understand why it is relevant for them. From an external perspective, it can help to create positive perceptions around the brand, which in turn can feed into value creation.
If business owners are looking to optimise value ahead of a sale of the business, the two main strategies are improving margins, usually by reducing costs, or increasing revenue by revising the sales strategy.
At the same time, any issues within the business that could erode value need to be addressed, with strategies developed that clearly demonstrate how the issue could be approached, and the costs involved. These could include supplier issues, weak margins, customers issues, compliance matters, outdated plant and machinery, for example. If not, any potential buyer will use these as reasons for driving down the price they are prepared to pay.
While there are many factors that drive business value, owners who have a clear strategy to elevate operational and financial performance, and a documented plan for maintaining value or delivering future upside, will be in a stronger position to optimise value for the long term.
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