Increasing the shareholder value of your business is very important when the time comes to sell. However, this is not the only reason why shareholder value is important. Continual improvement of shareholder value helps to increase the financial strength of your business and its value in the eyes of customers, suppliers, lenders, employees and a whole host of other stakeholders.
We believe that there are five key drivers that shape shareholder value:
- Management mind set;
- Market position, consumer & offering;
- Management team;
- Business operations; and
- Business models, strength & risk profile of future revenue streams.
These drivers are internal and based on the idea that the success of a business is firmly within its control rather than external factors that it has little influence over. With these mind, below are eight ways that you can enhance the shareholder value of your business:
An agile management team will drive your business forward. Reacting to evolving markets increasingly shaped by technological advance, employing a strong and competent management team will help you navigate through the ever-changing business environment. Shaping staff behaviours and business culture, this strong management team should also eliminate the reliance on owner managers.
It goes without saying that innovative businesses operating at the forefront of their sector, driving change and shaping consumer habits will be more successful than those that lag behind in a reactive capacity. Understanding key market drivers and assessing competitors is essential. The quality of the product or service offering is also fundamental to market position.
Continually assessing potential customers and developing new routes to market will increase the reach and spread of your customer base. More customers generally mean more turnover and businesses without any significant customer concentration have a lower risk profile. It means that the business performance is not relying on a small number of customers (or sometimes individual customer) and that the business is impacted less by any customer churn.
The quality and efficiency of business operations have become even more important in an environment that is increasingly being driven by technological advance. Squeezing out operational efficiencies and implementing robust processes results in cost savings, improved lead times and higher profit.
Strategic performance review
Having a clear business strategy and setting objectives to achieve this is essential to long term success. These plans must be fed down to management, employees and other stakeholders.
A motivated and engaged employee group will improve productivity and efficiencies. Understanding what motivates employees and delivering these not only increases output but leads to key staff retention, which encourages the build-up of strong knowledge and skills across the business.
Quality of asset base
Ongoing investment in your asset base should increase operating efficiencies and reduce spend on maintenance. This is particularly important in capital intensive businesses that rely on fixed assets to manufacture products or deliver services. Sweating certain assets may save capital spend in the short-term but this is usually a false economy. A programme of asset review should allow management to ensure sustained growth.
Up to date and accurate financial information improves decision making. Understanding where the business is at any point in time and assessing key financials metrics should allow directors to effectively manage cash flow, credit control and working capital cycles. This will ultimately improve the financial management of the business.
Getting these components right, could mean an increase in shareholder value of more than five times.
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If you would like to know more about increasing the value of your business, please get in touch with our Optimize team below.