How to create sustainable value in medium-sized companies
By Emer O’Riordan
Despite the strong entrepreneurial drivers that can be a force behind many businesses, some still face challenges when it comes to achieving sustainable value.
There are six questions that all business owners should consider as they try to bridge the gap between where they are now and long term sustainable value.
1. Am I acting as a strategist or a firefighter?
When faced with a period of slow growth, owners can place emphasis on external factors such as economic landscape or market sentiment, however, it is internal structures that have the strongest impact on improving performance.
For example, a company with a strong finance function, good risk management processes and a board with a fully aligned strategy tends to perform better than those that do not.
Therefore, as a business owner it is important to focus on long term strategic planning to enhance performance as opposed to last minute firefighting to reach goals.
2. Have I identified the key value creation factors?
Most companies have one clear goal: to grow capital value. Longer term, it may be to create a business that will be in the position to exit or pass it on to the next generation.
Regardless of your goals, a number of factors must be met in order to reach them, including market sentiment, financial indicators, consistency of turnover, debt, asset base quality and balance sheet strength.
It is also important to consider any over dependence on key customers, the risk profile of company activities and over reliance on you as an owner manager. In addition, quality of information and processes are further factors to take into consideration.
The extent to which you can successfully identify and manage these value creation factors will determine the company’s market value.
3. What is impacting my ability to manage performance drivers?
Presenting a clear vision helps to strengthen business plans and encourages everyone to work harder to achieve their goals, ultimately managing and driving performance forward. Therefore, focusing on formalising structures to align shareholders and management team goals will professionalise and improve the foundations that are needed to manage these drivers. It will also help form the basis of a stable three-to-five-year strategic business plan that communicates to everyone within the organisation what is expected of them.
4. Do I suffer from value proposition drift?
As digital disruption introduces new players to the market, it is important to know who you are competing with and the main points of comparison and difference.
As an owner manager, you will need to constantly review, check and verify the value you provide to your customers and supply chain when you enter new markets, introduce new products and services, or manage new sales channels. This is important if your value creation strategy is to remain on track.
5. Have I clearly articulated the company’s culture?
Recruitment and retention of talent can be a challenge for businesses competing with large corporate benefit packages and the lure of fast-moving start-ups. Creating a culture of openness and inclusivity alongside a talent management strategy is vital to attracting, developing and retaining staff. This is equally important when aiming to attract external investors who put weight on a strong company culture and talented management team as a precursor to investing.
6. What factors are in my control that I can change?
Addressing internal issues can have a much bigger impact on shareholder value in the long term than, for example, placing every effort into increasing margins by 1%.
Yet, which internal elements to focus on and how different company functions could be impacted by change is not always obvious or clear cut. Having experts working alongside owners and executive teams can help identify and prioritise challenges.
As businesses focus on the next stage of their journey, putting a framework in place that can identify and improve the critical drivers of success will be key to sustained, long term value creation. The good news is that the ability of businesses to bridge the value gap lies firmly with its owners and management.
This article was written by Emer O’Riordan, Partner at Mazars.
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