6 Ways to Build Business Value in an Unpredictable Market

By Gokul Anil, Vice President, Doeren Mayhew Capital Advisors

When in the midst of economic uncertainty, preparing your business for sale may seem like an unideal strategy. However, if a sale is in your near future, this is often the best time to focus on your company and identify ways to build and create value.

Doeren Mayhew Capital Advisors offers these ideas to prioritize within your business to position yourself for maximized value should a potential sale opportunity arise.

1. Streamline Processes to Prepare for Increased Earnings

Use this as an opportunity to invest in your business. Think of all the things you wished you had time to do while the team was too busy to get them done. Focus on areas that will increase your business’s efficiency and overall value. This may include training, implementing new processes or software, or investments in equipment or key personnel.

A buyer will value your company’s streamlined processes because it represents a strategic advantage directly impacting your bottom line, giving you more leverage when you’re ready to sell. Companies with well-defined, efficient processes are often more profitable than their competitors because they can produce goods or services at a lower cost and faster rate. This translates to higher revenue and profits, both critical buyer considerations.

Streamlined processes also allow for quick scalability to easily grow or expand, plus help mitigate risks associated with a company’s operations, further increasing value in the eyes of a buyer.

2. Diversify Your Products and Services

While this may seem like strange advice, competitors are likely finding areas to cut back, leaving opportunities in a new market for your business.

Expanding into new product categories allows a business to tap into new customer segments and revenue streams, potentially increasing market share and overall profitability. Diversifying your company can help spread its risk across different product lines, reducing your reliance on a single product or market.

This can help safeguard your business against economic downturns or changes in consumer behavior that may impact certain business lines. It can also foster innovation within your business, as it may require new research and development efforts, partnerships and marketing strategies. Ultimately, you are positioning your company for long-term success and sustainability in a competitive market.

3. Consider Vertical or Horizontal Integration

As business valuations are depressed, this is the perfect time for businesses to acquire and grow. Vertical or horizontal integration is crucial for companies to enhance their competitiveness, gain market power and achieve economies of scale.

  • Vertical Integration: This involves acquiring a company that operates in a different stage of the supply chain, such as a supplier or distributor. With today’s supply chain constraints and rising costs, acquiring a supplier could position your company to gain control over its supply chain and reduce its dependence on external suppliers. This can lead to cost savings, improved quality control and increased efficiencies.
  • Horizontal Integration: This involves acquiring a company that operates in the same industry or market. By acquiring a competitor, your company can increase its market share, eliminate competition and gain access to new markets or customers. This can be particularly beneficial in industries with high barriers to entry, where it is difficult for new players to enter the market.

Both forms of integration offer benefits such as increased efficiency, reduced costs and improved customer service. By combining resources, knowledge and expertise, your business also strengthens its competitive advantage in your respective industry.

In some cases, acquiring a competitor or supplier can present some challenges, such as cultural differences, integration issues and regulatory hurdles, so be sure to carefully think through this process with trusted advisors.

4. Focus on the Numbers

A potential buyer or investor wants to see a well-prepared seller, so accurate and proper financial records are crucial for any business seeking to maximize value. Reliable accounting and financial controls not only highlight the strength of your management team, but also allow you to keep track of your company’s financial activities, monitor income and expenses, and make informed decisions. It also helps your business remain in compliance with any legal, tax or financial reporting requirements.

When valuing a business, buyers focus on your earnings before interest, taxes, depreciation and amortization (EBITDA). Solid financial records help can identify any add-backs as well, which will normalize your cash flow and increase your EBITDA. As your EBITDA increases, so does the value of your business.

5. Maintain Profitability Through Cost-Control Management

Cost management can bring many benefits to your company, such as minimizing expenses, maintaining profitability and improving your bottom line, all of which will help you make more informed business decisions to achieve long-term success. Additionally, businesses can ensure they are not overspending on non-essential items and can identify areas to reduce costs without sacrificing quality or productivity.

Investors are often interested in companies with a strong track record of cost management, as it indicates the company is running efficiently and has a management team focused on maximizing profits, which drives business value. The ability to show business profitability despite challenging economic conditions makes a buyer more comfortable with the risk because it indicates your ability to weather economic downturns and can offer potential for future growth.

Without proper cost management, businesses may struggle to remain competitive, which can erode profits and make it difficult to reinvest in growth opportunities.

6. Strengthen Relationships

Buyers are always looking for companies with a solid foundation, strong growth potential and a competitive advantage. Strong relationships with vendors and customers help you achieve that.

Vendors provide the necessary resources and supplies required to operate, so building these strong relationships with them can ensure timely delivery, fair prices and priority access to new products or services. Additionally, your strong vendor relationships will be viewed as a sign of stability, indicating the business has a reliable supply chain and is less likely to experience disruptions in production or delivery.

On the other hand, customers are the lifeblood of any business, so developing strong relationships with them can lead to repeat business, positive reviews and future referrals, all driving your value. As you think about ways to strengthen your client relationships, it could be a great time to implement a cross-selling initiative within your business. This is a cost-effective option for your business to simultaneously increase its revenue and build an even more loyal customer base.

Overall, your vendor and client relationships can also help mitigate risks and reduce the likelihood of unexpected costs or issues arising post-acquisition, making the business more attractive.

Rely on the investment bankers and M&A advisors of Doeren Mayhew Capital Advisors to assist your business in finding its strengths and leveraging them to maximize proceeds from a sale. For more information, contact our investment banking team today.

Securities offered through Doeren Mayhew Capital Advisors, LLC. Member FINRA/SIPC.

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