The Importance of Value Drivers for Business Owners

Business Transition Alliance

Business Transition Alliance
The Importance of Value Drivers for Business Owners

When starting a new business, it is not unusual for entrepreneurs to think that the most important factor of their business is revenue. While revenue is important and allows for more stability and flexibility to make bigger decisions, it is not the most important aspect of a business. A fundamental factor to take into consideration to have a successful business is assuring that your organization has enough value to exit with financial security.

Business owners must be constantly thinking of business valuation to ensure that they can transition from their business when the time comes. How can you ensure that this will happen? The answer is value drivers.

What are value drivers?

Value drivers are business characteristics that drive growth. Regardless of your organization’s industry, it is important to consider these drivers: next-generation management, growth strategy, and customer, suppliers, products, services, and industry diversification.

1. Next-Generation Management

It is important to ensure that key managers have the motivation, experience, and knowledge to continue to grow your company once you have transitioned. Retention of management and employees is important—it allows you to prove to your buyer that systems of long-term incentives are already in place, and they do not need to be worried about the workforce.

2. Growth Strategy

Although your business’ history is important to buyers, they are mostly concerned about the future. Demonstrating a growth strategy and growth potential also demonstrates value. Having a growth strategy brings security to buyers that they are about to make a profitable investment.

3. Customer, Suppliers, Products, Services, and Industry Diversification

Diversification mitigates risks. By diversifying your customers, suppliers, products, services, and industry, you also reduce operational risk and increase your business value.

As business owners, it is important to be aware that getting a company properly prepared for sale can take time to yield maximum value for your company’s worth. By focusing on important value drives, you will have a more profitable business in the long term.

We also recommend that you check out our previous blog post on The Importance of Knowing the Value of your Business in a Transition  as it highlights the different ways you can determine the value of your business.

At BTA, we are here to help. Contact us at contact@btahelps.com to find out how we can support you in reaching your business value goals.

About BTA:

We are business owners and advisors that offer consulting services to entrepreneurs. Working hands-on, we help develop and implement effective strategies that increase business value, growth and profitability, to prepare for the future.

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Contact us to learn how we can help your company.