The economic value of any business is the present value of its cash flows. Business Valuation Experts hone in on this metric during the valuation process. Value drivers such as reputation, patents, brand, organizational health and new products are all considered when placing a value on a company. These impact the expected future cash flows of the business and thus drive value.
For business owners to proactively increase the value of their organization, they must increase the cash flows a reasonable buyer can expect to achieve in the future. Sales – and perhaps more importantly collection of receivables and managing inventory – less expenses (operational and capital) drive value. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is the most common and important figure, besides revenue, when coming up with a value for a business.
Things like price, brand awareness (i.e., marketing), people, product quality, customer service and even your company’s perceived value can drive customers to buy. To enhance these factors and drive sales, these different activities within your firm should be evaluated prior to costs and margins. Once sellers have done the following, they can begin to look at costs needed to deliver sales:
- Optimize price for their markets – create value for customers that exceeds the competition
- Increase brand awareness and deliver high quality products/services.
- Align and motivate people to deliver exceptional value in a day to day basis. Execution of business plans requires alignment and accountability. Every team member must know their roles in executing the plan and have measurable goals with specific deadlines.
- Alignment requires meetings to let people understand the importance of the tasks and expectations of the business.
If you’d like to learn more about value enhancing strategies including cost benchmarking and saving, you need a Business Valuation Expert w/ Strategic Planning experience. Burns valuation Consulting offers Exit Planning services to help business owners plan for the future. Simply call us today at 770-380-2406.