Oftentimes, business owners focus their efforts on increasing sales and profitability. This is understandable, as it is often the quickest way to generate additional revenue. However, by focusing on improving the eight key areas of Planning, Leadership, Sales, Marketing, People, Operations, Finance, and Legal, business owners could grow the intrinsic value of their businesses, making them more attractive to potential buyers and investors while organically increasing the immediate profitability in the process.
8 Key Areas that Determine Real Business Value
There are a near-infinite number of ways you could “improve” your business. As an entrepreneur, you’ve likely come up with many creative and brilliant ideas to drive greater profits. That’s part of the entrepreneurial mindset. You’re constantly looking to improve your business. However, the trap so many get caught up in is the never-ending pursuit of profitability. This isn’t inherently bad. After all, profits are necessary for your business to remain solvent. But simply chasing profitability does nothing but provide you with the illusion of success. It can give you the ability to invest back into your business (new equipment, more materials, comfortable furnishings in the lobby, etc.) and provide you with a nice income. But what happens when it’s time to retire or transition out of your business and that income disappears?
Just because your business generates a healthy income for you doesn’t mean it’s valuable to someone else. If you don’t work to grow the overall value of your company, you could reach retirement with no means of funding it. Fortunately, we’ve identified eight key areas in every business that have a direct and lasting impact on its intrinsic value. By focusing on these areas, rather than profitability, you can grow the value of your business. In doing so, your business can become a valuable asset that others would want to purchase. An added benefit to this approach is that profitability has a natural tendency to follow.
One of the most foundational elements of any business is planning. Without proper planning, you can’t accomplish much. As you work to improve your business’s planning, you open the doors to improving other areas of your business. Every business owner should have a fully developed, written business plan. This document allows anyone who reads it to know exactly what your business is, who you intend to reach, how you’re going to do it, and why. Additionally, your business plan is vital when it comes to securing capital for growth and expansion efforts.
In addition to a business plan, your business receives incredible direction through effective strategic plans. As you work to grow the value of your organization, you’ll repeat the strategic planning process again and again. Every business has unique strengths, weaknesses, opportunities, and threats. Similarly, each business owner has goals that are unique to them. Strategic planning enables you to identify each of these while creating workable solutions to achieve or improve them. Planning adds value to your organization by aligning your team to your vision and providing unified direction to reach its goals.
Next, in the eight key areas, is Leadership. Oftentimes, leadership is mistaken for management and vice versa. While the two can come from the same source, they’re not inherently linked. A person can be a great manager without being a good leader. Likewise, great leaders don’t always make good managers. True leadership comes from those who recognize the greater objective and empower those around them to be the best version of themselves as they work to achieve it. Leaders place the team above themselves. This doesn’t mean that personal ambition is bad. Instead, it means that leaders recognize that their personal objectives can be met while pushing others forward or helping them up.
Having great leadership within your organization can help you grow the value of other areas as well. Through continued leadership development, you could create a best-in-class team of people, identify “outside the box” solutions to problems, and ensure that your whole team is adhering to your mission and vision. Great leadership adds value to your organization by providing consistent, efficient effectiveness, clarity and focus, while also giving your business the ability to become scalable.
Sales are such a crucial element to the overall health of your business. Your company’s success or failure hinges on your sales team and processes. If they’re not making sales, you have no cash flow. If the sales process is too cumbersome you could lose customers through problems with efficiency, supply, or even frustration with an overly complex customer onboarding process. Yet, creating a best-in-class sales department that adds real value to your business involves much more than simply convincing a client that they need your product and delivering it in a timely fashion.
To add real value, your sales team must have a clear understanding of your sales goals. Likewise, sales goals need to be regularly attainable. Although you want to set these goals high enough that your team must work to reach them, making them too lofty will often have an adverse effect. Each member of your sales team should have a complete understanding of your competitive advantage and be able to articulate it to your customers. Additionally, a best-in-class sales team is skilled in providing unbeatable service and creating repeat customers. Growing the value of your business through your sales department means you’ve sought out the best sales talent money can buy, trained and immersed them in your company culture, and developed efficient and repeatable sales processes.
Perhaps the most misunderstood and under-appreciated of the eight key areas is marketing. Your business’s marketing department is how you connect with your customers. Without marketing, consumers have no way of knowing that your business exists. However, a truly valuable marketing department is present during every step of your business’s sales processes. From the branding on your front door to the closing sale, marketing tells your customers who you are, what they can expect, why they should trust you, where they can find you, and when you’ll fulfill their orders.
In addition, a best-in-class marketing department will track the results of your marketing efforts, refining them to better target your ideal customer. Similarly, they will work in tandem with the sales department to improve conversion and retention practices. Marketing adds value to your business by putting it in front of consumers, generating qualified leads, converting leads into customers, and creating retention programs that produce repeat business and customer loyalty.
Having great people can make a huge difference in your business. Of course, you want to assemble a team of the top talent money can buy. It’s obvious to say, the people you employ will have an impact on the client experience, but having great people in your business goes well beyond this. Great people add value to your organization by being great at their jobs. However, it’s the intangibles that really determine how much value they add. If your team is aligned with your company’s culture and values, displays a diversity of thought while working toward common goals, and offers respectful support to challenge or strengthen your ideas, they’re going to add tremendous value.
However, your organization’s people are one of the more nuanced areas of the eight key areas. Beyond all of this, your people add value to your business through their level of training and education, longevity, roles they fill on your team, and even in the way they complement each other’s skillsets. Additionally, the value assigned to your people can be affected by the employee retention programs you’ve put into place. A business with best-in-class people has teams that are well-trained, self-sufficient, and proactive in their work.
Your company’s operations describe how you perform each task. From opening the doors in the morning to locking up at night, and everything in between, valuable businesses have a process for everything. Highly valuable operations are simple and efficient. Similarly, they contain safeguards to ensure each step has been followed. Businesses with best-in-class operations have found the most efficient and repeatable processes for every part of their business. Likewise, they have put each of these processes into a clear, concise manual that anyone could reference and easily understand how to perform a given task.
Your business’s operations department adds value to your organization by creating the most efficient and effective ways to convert materials and labor into goods and services, maximizing profits. Operation management teams attempt to balance cost with revenue to achieve the highest net operating profit possible.
Your business’s value is influenced by risk and the predictability of future cash flows. If you can show investors or buyers a history of steady cash flow and a projected trajectory of steady cash flow, your business becomes more enticing to them. It becomes valuable. Your finance department has a direct influence on each of the other areas of your business. It adds value by helping you achieve the long-term goals from your strategic plans, manage cash flow to provide funding for growth, provide transparency for investors, create internal controls to mitigate risk, and more.
Every investment comes with some level of risk. This includes your business. That’s why your legal department is so important. Where buyers and investors are concerned, the greater the risk, the less attractive your business becomes. Your legal department’s primary responsibility is to mitigate the risks your company could face. A best-in-class legal department will ensure you’re compliant with all regulatory bodies. Likewise, they’ll reduce the threat of litigation through various contracts and agreements. Additionally, they will regularly review your insurance coverages, ensuring there are no blind spots.
A single legal action taken against your business could be enough to close its doors forever. A great legal team adds value to your business by removing company-specific risk and protecting it on all sides.
Each of these eight key areas has a direct connection to your business’s value. By working to improve them, you could turn your business into a valuable asset that’s attractive to buyers and investors. The team here at Heritage works with owners like you every day, creating and implementing personalized value growth plans. Visit our Business Value Growth Process page to learn how we would work with you.