How can a business valuation enhance shareholder value? Through a business valuation, a company can determine its true value drivers. Those might include key client relationships, location, proprietary technology or any number of critical success factors. A valuation illustrates where a company should focus its efforts in order to grow the value of the business and maximize dollars invested in growth. Simply put, investors want to know where to focus time, talent and capital, and a business valuation can highlight those promising areas. You wouldn’t throw money at a product that wasn’t a value-driver. Also, keep in mind, shareholders are the true owners of a business, so a valuation is a critical exercise for identifying corporate differentiators that deliver shareholder value. How can a business owner use a valuation to increase a company’s worth? A valuation can help you begin with the end in mind and create a plan to focus on enhancing areas of the business that promise profit. Once you identify areas of the business that improve profit, you can stop doing the things that don’t. For example, you could eliminate a product line in order to focus your company’s talent and capital on a product that will raise the overall value of the business. A valuation truly serves as a critical planning document that can help you make key business decisions in the areas of customers, people, process and finance. When these four components fall into place, a company has a balanced scorecard and is in the best position to improve its value. What are the keys to developing a value enhancement process? The valuation establishes a baseline and a better understanding of the key value drivers. These are different in every company, but there are three basic areas that affect the value of every company: people, systems and strategy. Management depth and quality affect a company’s value. A company can immediately improve the bottom line, and its overall value, by establishing sound contracts with key personnel. Second, financial and accounting systems are important to assess the value of a company. Third, a company that has vision and a plan to reach its goals is more valuable than one without such a focus. Simply performing a business valuation improves value because it gives owners a clear picture of where the company stands and what components will help it grow profitably. How does an owner get started with a valuation process? Seek out accredited individuals specializing in business valuation who know how to really dissect a business, analyze financial statements and project to the future. While maintaining their independence and objectivity, valuation professionals can apply their business knowledge and recommend steps you can take to improve the overall value of your business. BARRY WORTH is a member and director of mergers and acquisitions and turnaround consulting and BILL WILLBRAND is a member in tax and accounting at Brown Smith Wallace LLC. Reach Worth at (314) 983-1202 or [email protected]. Reach Willbrand at (636) 754-0200 or [email protected].
