By Curt Fowler | Fowler & Company
In a purely economic sense, the value of any for-profit business is the present value of its cash flows. A lot more goes into the valuation of a business and there are exceptions where businesses are valued based on metrics that most ordinary Americans could never understand (just think back to the internet bubble). Factors such as reputation, patents, brand, organizational health and new product pipelines are all considered when valuing a company. But these elements are only measured because of their expected effect on the future cash flows of the business.
So, how do you increase the value of your enterprise?
Let’s start from the end and work our way back. To increase the value of your organization you need to increase the cash flows a reasonable buyer can expect from your company in the future. What drives cash flows? Sales (and collections) are the beginning of all cash flows. I know this is beginning to sound elementary but stick with me for a minute.
What drives sales? Purchases from new and current customers drive sales. What prompts them to buy? Lots of things like your price, brand, your people, your product, your customer service and even your company’s values can drive customers to buy. To drive the factors that drive sales you need to be looking at a lot of different activities within your firm. Only then, can you turn your eyes towards costs and margins.
So, how do you drive the value of your company? Take these three steps.
1 – Deliver Value Through Your Strategy – Your strategy is your plan to outperform by creating more value for your target customers than your competitors. When you can consistently outperform (create more value) than your competition, the market (customers) will flock to you.
2 – Align Your Team – Your team must fully understand your plan to deliver exceptional value to your target market and their role in delivering that value. How can they execute your strategy through their daily actions? If your team does not understand how they contribute to the success of the organization daily, your best-laid plans will fail.
3 – Drive Execution – Execution of your plans requires alignment and accountability. The business world is a busy place. It is full of distractions that take your and your team’s eyes off the most critical aspects of the business. Every team member must know their roles in executing the plan and have measurable goals with specific deadlines. You must diligently define the win for everyone with short term goals that lead to the longer-term victory.
Accountability requires meetings. The meetings do not have to be long and they can be virtual. Your people are busy and they will only prioritize what you are focused on. Let them know how much you care about executing your most critical goals by checking in. It lets your people understand the importance of the task and gives you an opportunity to get roadblocks out of their way.
Consistently deliver more value to your customers and they will dramatically increase the value of your business.
Curt Fowler is an organizational growth expert and President of Fowler & Company, a business advisory firm dedicated to helping leaders create and achieve a compelling vision for their organization. He has an MBA in Strategy and Entrepreneurship from the Kellogg School, is a CPA, and a pretty good guy as defined by his wife and four children.