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Critical Planning Steps
What immediate steps can be taken to help double a company’s value? The following is a four-step, annual planning process illustrating how to double private company wealth.
Step One – Determine Value
This isn’t the “selling” price for the company, but what the whole company is really worth. This is a baseline to begin the process of value management. Is it the fair market value (hypothetical buyer/seller) or investment/strategic value (market share buyer)? Each definition produces a different value.
Step Two – Focus Attention on Risk Factors
To build value, one must understand what increases or decreases company value. The following are a few key metrics: (i) investments – this is the cash in the business that is tied up in current and fixed assets and intellectual capital; (ii) return on assets – is the net cash flow the company generates, determined by sales volume, profit margins and asset requirements; and (iii) risk – reflects the company’s likelihood or probability of success – lower risk relates to a higher probability of achieving cash flows, increasing value. Most often, risk is heavily influenced by these four key factors; management, customer concentration, market competition, product and services offered.
Step Three – Strategy to Build Value
With proper execution of step one and two, one should clearly see the company’s competitive advantages and disadvantages. The next step is designed to capitalize on these strengths and shore up weaknesses. Develop a plan and timetable to begin minimizing the identified risk factors. Review the company’s value drivers and propose any changes to minimize or eliminate the risk factors identified in step two.
Step Four – Annually Review, Adjust and Reassess
Review key performance metrics, adjust the strategic plan based on past performance to date and reassess the likelihood of achieving the financial goals, timetable and whether there needs to be any changes.
How can American Business Appraisers help?
The business valuation profession is a highly specialized field requiring a solid foundation of experience and professional integrity. Our staff is recognized for their experience and are sought after to develop business valuation courses, as well as, being national instructor for various business valuation organizations. Contact any staff member for questions relating to business valuation issues or call us to discuss your specific valuation needs. We also invite you to visit our website and see for yourself the services we offer, along with our qualifications.