50 ways to Increase your Business Value
Who does not want their business to thrive? If you are a business owner, then, increasing your business value is on your hit list. A common perception is to increase sales and profit margin to reach the euphoria moment. But, these are not just the only factors that increase your business value. The value of your business extends to its vision, strategy, objective, and how the brand is perceived by the people.
So, here are 50 simple ways by which you can increase your business value. There are no shortcuts to any place worth going. Likewise, these tips are no shortcuts. These are the bricks that lay the foundation of a good business.
- Cash is the blood of any business. No matter how much your profits are, the business gains value when it shows its ability to convert profits into cash.
- Increase your profits at a similar rate to that of your revenue. This shows that with every percentage increase in revenue, the cost is not rising at a similar percentage. Hence, the company can earn profits from increasing revenues.
- Compare your advertisement costs with the amount of revenue generated. The Company should aim for organic customer acquisition in long term through its good market reputation and by building its brand identity.
- Diversify your customer base. Being dependent on a few large customers gives your company low bargaining power and it is a hanging risk on the company as the prosperity of your company is highly dependent on the fate of your customer’s business.
- Fix your attrition rate. Especially, if your company works on an asset-light model. Low employee turnover spreads a good word about your business.
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- Do not let your product be Commoditized. Commoditization occurs when people do not believe that your product provides any distinguished economic value or has any different attributes from your competitor’s products. If this happens, customers can easily switch to another product. If this is happening, then, you need to make changes to your product and rebrand it.
- Fund your expansion through internally generated cash flows by the company. Your business value will reach multifold when it can fund its capital expenditure on its own rather than taking external debt.
- If your business involves selling multiple products or services or both, then you need to calculate product-wise profitability. Evaluate whether the resources that are used in the manufacture of the least profitable product could be applied to more profitable products.
- Take debt to finance a project only when the return on such project justifies the interest rate paid on the loan taken.
- Reduce your debtor days. If debtor days are less than creditor days, it ensures a smooth flow of working capital.
- Associate your product with a social cause. Your product should make people’s lives easier. This will enhance the brand image and increase your business valuation.
- Build a healthy work culture by establishing accountability through robust internal control.
- If you own a manufacturing business, then you have to take ‘make’ or ‘buy’ decisions wisely. If an input can be bought from outside at a lower price, then it is better not to manufacture it internally. But, if purchasing from outside compromises the quality of the product, then you should ignore the cost savings as it will hurt your business in the long run.
- Sort your customers based on average order size. Consider small average orders of 8 to 10 customers as one business unit and customers with large order sizes as another. Now, try to increase the reorder frequency of these business units. This will ensure consistency in sales.
- Whenever your industry witnesses a drastic change, try to adapt and launch new products so that you do not lose your customer base. A company that is proactive to changes rather than reactive is often valued more. Your previous track record of responding to industry changes plays a great deal to increase your business value.
- Expand your distribution network. Making your product easily accessible to customers increases your sales and hence, increases your business value.
- Make your operating cycle efficient. Review your operating cycle to track down idle hours, high lead time, production inefficiencies, and other non-value-adding activities. Your cost will reduce a great deal by eliminating these activities which will increase the bottom line.
- Resolve pending tax disputes and pending lawsuits as quickly as possible. Although, these liabilities do not hit your Balance Sheet but they possess an impending danger to your business value.
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- There should be more fixed cost component in your total cost as compared to variable cost. Initially, it would take some time to cover fixed costs but as soon as these are covered, the total cost will rise at a decreasing rate.
- Your product cannot be easily substituted. People should obtain higher perceived value from your product. This will prevent your product from being substituted or replaced.
- Evaluate your customer feedback at continuous intervals to spot the common problems faced by them. This will provide insight into how you can improve your product or service.
- Think about the long term and build a team of good managers. Your business should not be too much dependent on your presence.
- Your Company’s Operating systems for managing operations, assigning tasks, placing orders, and hiring personnel should be effective and efficient. These systems have to be seamless so that there is no delay and confusion among employees.
- Automate the processes which you can. Staying ahead in your digitalization game increase your business value.
- Focus on waste minimization during production by achieving perfect first-time quality, zero waiting time, reducing the scope of rework, etc.
- Conduct a time and motion study. This study will help you to find out unnecessary movements of machines and people during business processes that will reduce costs.
- Communicate your company’s short-term goals and long-term goals with your employees at certain intervals. These will keep them motivated and synchronize their work towards a common objective.
- Increase your free cash flows. This amount is ascertained by subtracting capital expenditure from your operating income after taxes.
- Identify and close the retail outlets or service centers with less footfall.
- Instead of focussing on just the economic bottom line i.e. profit, expand your horizon towards two other bottom lines viz. People and Planet. The bottom line ‘People’ covers the areas such as health and safety of employees, corporate governance, human rights, and an ethical work environment. The bottom line ‘Planet’ covers the impact of your business activities on natural resources, pollution, carbon footprints, etc.
- Performance should not be directly measured in terms of top line and bottom line. The Company should have Key Performance Indicators designed for each department. This is would help in identifying the factors quickly that are driving sales and profits.
- Reduce warranty claims. Having more warranty claims reduces customer loyalty and increases production costs.
- Employ your pricing strategy in such a way that you acquire a large market share in the long term. For example, if you want to sell products that are already present in the market, then you can sell at lower prices than your competitors to acquire market share.
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- Monitor your operating cycle continuously for quality improvements. The operating cycle comprises from procuring raw materials to getting payment from the customers. There are a lot of processes and functions that happen during this cycle that can be improved.
- Keep up with the industry trends by continuously researching and developing. Also, you can become a pioneer in changing industry trends through your Research and Development. This increases your business value tremendously.
- Schedule timely repairs and maintenance of machinery to avoid breakdowns and eliminate idle labour hours.
- Establish Critical Success Factors (CSFs). These factors depict the areas that are necessary for attaining the objectives of the company. For example, in a sales department, increasing customer reorder times is a Critical Success Factor.
- Set competitive and functional benchmarks. These benchmarks should evolve with the dynamic business environment.
- Build your internal control system such that your system generates bills in advance based on the contract with the suppliers. When the company receives the actual bill, your system can compare this bill to find any differences. It would prevent over-payment to suppliers.
- Have a Risk Management Team that monitors all the potential business risks and helps in timely risk mitigation.
- Prepare Reasonable Budgets for Expenditure, Sales, Production, and Profits. Evaluate the reasons for any significant variation of actual results from the budget. Identification of variance can help you in taking timely corrective actions for the future.
- Ensure optimum utilization of resources. Identify the resources that are in the bottleneck. The product mix should be such that these bottleneck resources are fully utilized and with maximum possible profit.
- While sorting out business problems, pick the low-hanging fruit first. 80% of the problems could be solved by addressing just 20% of the total problem causes. Therefore, start with solving this vital 20% to get a higher pay-off.
- Do not just look at the financial costs but also the environmental costs. If your business actions bring environmental damage, it would lead to fines, loss of corporate image, etc which directly hits the top line. If the company is environmentally aware, then this increases your business value.
- Be a good manager. Being a good manager means understanding that people working under you have specialized knowledge about their area of work. A factory worker knows more about the discrepancies in a machine rather than the senior manager. Involve people from different levels to identify and solve a problem or improve the process.
- Read your long-term contracts with vendors and bankers carefully. Any hidden clause or encumbrance in the contract’s fine print could cost your business value.
- Data is the new currency. While running a company, you get insights into your customer’s spending habits, region-wise demand for your product, consumer trends, etc. You can generate your first-hand Research Report from this information and could use it to launch a new product or acquire a different product line. Your database also increases your business value.
- Develop your growth plan and strategy. It is the future cash flows that increase your business value directly.
- Go Digital. Netizens are the new citizens. The online presence of your business is equally important as the offline presence. Your business value increases if you have a strong web presence and people can access your product and/or services in a few clicks.
- Provide a good after-sale service to customers. While purchasing a product, customers also look at how accessible the after-sale service is. It is the happy existing customers that send new customers.
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This is not an exhaustive list. There can be more specific ways to increase your business value depending on the type of business. This list comprises must-haves in your business and a guide to good business practices. Some of the tips in this list are small and will not reap any result immediately but in the long run, these small improvements will have a compounding effect.