According to the annual Business Reference Guide written by Tom West, 70-80 percent of businesses do not sell. One of the reasons this happens is because many business owners focus on current income generation as opposed to building the value of the enterprise. Profit or income does not automatically translate to enterprise value.
Enterprise value translates to the amount that business owners may realize when they sell or exit their business. There are 18 value drivers of a business, and each one of them can increase the enterprise value. They can be broadly grouped as Market Drivers or Operational Drivers.
The Market Drivers of a business are:
Growth – Your company has a history of consistent growth greater than its competitors, coupled with projected future revenue growth above the market’s rate.
Large Potential Market – The market supports significant growth of the business.
Dominant Market Share – Your company owns the highest percentage of the available market relative to its competitors.
Recurring Revenue – Your company can rely on a portion of future revenue from contractually committed customers.
Barriers to Entry – There are significant obstacles facing a new entrant into your company’s market.
Product Differentiation – Your company has a product/service with unique characteristics that provide a competitive advantage.
Brand – Your company has a recognizable brand that reinforces the business presence in the marketplace and supports the company’s objectives.
Margin Advantage – Your company enjoys gross and net margins greater than the industry norm.
Customer Diversification – Your company has a well-diversified customer base.
The Operational Drivers of a business are:
Company Overview – An outsider can easily obtain a holistic understanding of your company including your company’s performance, practices, culture, discipline, and mission.
Financial – All of your company’s financial matters are in order and you follow best practices.
Sales & Marketing – Your company can produce revenue in a proven and systematic way, ensuring the business is sustainable and not simply based on the efforts of individuals within the business today.
Operations – Your company has the ability to deliver on the sales promises made to the marketplace and to do it in a systematic and process-driven manner.
Customer Satisfaction – Your company tracks and uses key measures to meet customer expectations at all levels.
Senior Management – Your company has a leadership team/individual in place to realize the company’s vision and mission while helping the owner(s) achieve their objectives.
Human Resources – Your company has the ability to find, develop, and retain quality individuals that enables success in all aspects of the business.
Legal – You have all legal matters in order, documented, and your company follows best practices.
Innovation – Your company understands that innovation is invaluable to creating an ongoing competitive advantage; it has a proven and systematic way to drive and capture innovation at all levels and encourages innovation in every area of the business.
Do you know how your business is performing in each of the 18 value drivers? Spend some time with us and we can show you where your business is excelling and where there are gaps that you can close.