How to Maximise the Value of your Business – Part 2 – Systems & Processes
The value that an acquirer is prepared to pay is governed principally by two factors – the growth opportunity and the risk.
Looking at the second element, this primarily concerns the risk that future earnings could fall off. Where the business is dependent upon a few individuals (including most importantly an owner-manager), this presents a significant risk to an acquirer and they will reflect this in the price that they are prepared to pay.
Systems and processes act to counteract this risk.
Consider business development. Take on the one hand a business in which the sales come from few stellar sales people, where the process is not well understood by others in the business, and targets are miraculously achieved just before the quarter end!
Compare this to a business where the new business development process is well understood – different individuals are involved in each stage, and a clear understanding of the pipeline is evident to management.
I know which business I would have more confidence in. Upon acquisition, the sales people are those most likely to be approached by competitors (as they are the most visible) and it is all too easy for the key people to move on.
Similar arguments can be applied to other areas of the business, such a Operations or New Product Development. Time spent developing the systems and processes to strengthen the business will pay dividends when the time comes to exit.