Lakes Business Group Reviews the Top 'Value Drivers' for Business Owners

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Reviewing 'Value Drivers' to Determine How to Generate Added Value for Operations as Business Owners set Goals and Objectives in their Strategic Planning for 2014. The forecast for 2014 anticipates a sellers’ market as more and more buyers are coming off the sidelines generating greater demand and less supply.

Joe Braier at VR Lakes Business Group in Wisconsin

Joe Braier at VR Lakes Business Group in Wisconsin

The business environment today is not just about survival, it’s about focusing on and creating sustainable value

In today’s business world, many follow the traditional route when attempting to grow their business; which includes working hard, market aggressively, and keep your customers happy. Most consultants, professors, and businessmen will insist this is the equation for business growth. Although these ingredients are necessary for business success, many are realizing there is a short cut for growth; which is business acquisition.

Throughout 2013, many businesses have decided to focus their attention on business opportunities that offer a synergistic connection between their current operations and the opportunities they are exploring. The mergers and acquisition industry has seen an increase of buyers seeking business opportunities throughout 2013, creating a sellers’ market for those looking to execute their exit strategy. The forecast for 2014 anticipates the continued trend of 2013, as more and more buyers are coming off the sidelines, generating greater demand, and less supply. Due to the market trend, many business owners are reviewing the elements and components of their business operations to determine how valuable their business operation is and when the appropriate time should be to pull the trigger and execute their exit strategy.

According to Joe Braier, VR Lakes Business Group Inc’s Middle Market Mergers and Acquisition Advisor, those business owners who have successfully structured their business operations are seeing the most value for their operations. “The business environment today is not just about survival, it’s about focusing on and creating sustainable value,” says Braier. “Those business owners who have the ability to implement strategic business systems in their operations are the most attractive opportunities buyers are seeking.” Braier and his team of M&A Advisors work with business owners in placing a value on their operations and confidentially execute the owners exit strategy by discreetly marketing the business to targeted buyers. “Valuing a business is somewhat an art,” says Braier. “Some will value a business strictly on the most recent historic financial performance of the operations. While this is a very strong component of the valuation equation, it’s also important to understand the environment of which a company operates within.”

As business owners begin to review their operations and set their necessary goals and objectives for 2014, Braier suggests reviewing these “Value Drivers” and determining how they can be enhanced to generate additional value for the operations. According to Braier, the top Value Drivers consist of, but are not limited to, the following:

Owner Involvement: The most difficult adjustment for the small business owners is to understand how to leverage responsibility. “Buyers exploring opportunities where the current owner is a “Hat Rack” is an instant turn off,” says Braier. “When an owner is VP of Marketing, the Purchasing Manager, CFO, head of HR, and Customer Service Manager, it negatively affects the overall value of their operations.” Braier continues to say that delegating responsibility generates additional value for the company, which leads into his second value driver.

Management Depth: Having the appropriate managers in place who are responsible for the operations of their specific division is critical. The more defined each individuals role is, the greater value the operations receive. Human capital overall, from top level managers down to the interns of the company, is a strong business value driver.

Customer Diversity: According to Braier, one of the biggest negative effects of valuing a business is when a business puts all their eggs into one basket. “Lets say a business has a total of 100 customers. Out of the 100 customers, if the top 2 customers make up 80% of the total gross sales of the business, what happens if those 2 customers go out of business? What if they leave for the competition? It is important to diversify your customer portfolio and make sure one customer does not generate the way your business operations are run.”

Growth Opportunities: There is a famous saying of “buy low, sell high”. When it comes to the buyer’s viewpoint of reviewing the operations, they want to see there are untapped opportunities they can take advantage of and capitalize from. If a business is near the ceiling of its growth, most buyers will believe there is no upside for them to gain. “This is difficult for most business owners because they need to review what opportunities currently exist they have not taken advantage of,” says Braier. “However, pointing out the components of a SWAT analysis for the business shows buyers the overall potential of the business.”

Financial Reporting: In small business, its important to have clean books and records. Not only does the law require this, but buyers are going to want to review the historic financial performance of the business. Not having accurate bookkeeping will derail the process of valuing the operations.

Financial Trends: Having a business trending upward when conducting the historic financial performance will lead to additional value. If the business is trending downward, there needs to be accountability and explanation provided as to what is taking place and what measures need to be implemented in order to turn the business around.

Market Share: There are pros and cons to market dominance and lack of market share. Market dominance can allows business operations to have more control over the industry, while lack of market share can generate an opportunity for growth through customer acquisition.

Equipment & Facilities: There are many things to consider when looking at the equipment and facilities that are part of a business organization. When determining value, one must look at the age, condition, and importance of the equipment and facilities and how they contribute to the bottom line. Another key component is if a buyer is relying on receiving financing from a funding source, the funding source will want to use the equipment for securitization purposes.

Intellectual Property / Proprietary Process: Any intellectual property, trademarks, patents, or proprietary process adds value to a business operation.

Pending Litigation: If a business is involved with any type of legal disputes, this can add additional time to the exit strategy, as most, if not all, buyers will want the litigation resolved prior to moving forward.

“Understanding business valuation is somewhat of an art form,” explains Braier. “The best of the best in our industry realize that the financial historic performance is a big factor in the valuation equation; however, it is not the only factor. Knowing the elements of the business and the operations environment can provide most business owners with additional leverage when executing their exit strategy. And in today’s mergers and acquisitions market, it’s red-hot for sellers, because the buyers have come off the sidelines and are ready and willing to make a deal.”

Joe Braier has recently finished as a top 10 Global Associate of VR Business Brokers in the last 3 years. Joe takes the advisory role for business owners and directs them down the right path to capitalize and maximize value in their exit strategy. His Waukesha office was ranked #1 in the world and his team has successfully completed several middle market and large M&A business transactions.

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