What’s the value of my business…?
…is a question that I hear many business owners ask, sometime of me. It is an interesting question, especially for anyone who has gone through the sale and/or purchase of another business, as I have. Having done both a few times now, I realise that the reality is very simple…it’s the people, and only the people.
No matter what any business has in IP, process, bricks and mortar etc. it’s the people that developed them in the first place, and the people that maintain and transform them for the future. When a PE firm, or similar investor, first looks into a business, it’s the people they are looking at. The whole PE investment process is about locking those people into the investment for as long as possible – yes, if you’re a business owner looking to sell, don’t expect the sale to be your exit point…unless you have successfully separated yourself from the running of the business several years prior.
This may all appear to fly in the face of what I do as a business, which often tends to be a lot about structure and process. However, it’s not quite as simple as that. The best people can create the best work environment, which attracts the best people. In doing so they can also create the best processes, making the working life simpler and more enjoyable….and in doing so, adding more and more value to a business. Any business that operates better than its competitors is onto a winner. However, to really be successful, it has to be scalable, and this is where so many businesses fail. How often have you seen a great little business grow, and then at some point, it hits a glass ceiling or collapses completely? The key to success is great process.
Even if I, as a business leader, know the success of my business is about people, I may be unable to scale successfully if I do not know how to implement good process. I have met many successful business leaders whose real talent has been in their ability to hire great people, but what that really means is that they have a great selection and interview process. When they continue to scale, and can no longer complete all the interviews etc. themselves, the whole thing can soon fall apart. Putting that in perspective in numerical terms, one example I know of was making the same net profit at £12m of revenue as it was when it was just £4m of revenue….that’s a lot of extra work for very little return…
So what’s the answer…well, there is obviously much debate in the media at the moment about escalating wage rises, and of course, appropriate levels of pay are very important – Branson’s famous quote of putting your employees first, as they in turn will put your customers first – comes to mind. But retaining and enabling a workforce to thrive has many more elements than that:
- Are they engaged in the business?
- Do they know what the year strategy is and how they fit into it?
- Do they feel valued every minute of every day?
- When was the office last decorated?
- Are the office chairs relatively new and have multiple adjustments to make sure each staff member feels comfortable?
- Does their voice get heard?
- Does everyone in the business have a daily team meeting (just 5 – 10 mins) and weekly review with their boss?
- When the staff go the extra mile, how do the leadership show their appreciation?
- Do people get thanks face to face regularly?
- Have you linked an element of pay to the success of the business?
The above are just some of the questions that every business needs to ask if it truly wants to capitalise on its investment in people. One of the most beneficial tools I have seen for addressing the financial gap is by introducing an element of bonus. I have seen this done well, and very badly. In my experience, the best mechanism is built around net profit over and above business plan, on an annual basis. Some of this additional ‘free’ cash can be easily be used to motivate and reward staff, directly and/or indirectly, helping any business grow and succeed.
If you want to improve the value of your business, and think I could help you do so, please don’t hesitate and contact me now for a free no obligation review.
Mike Cameron-Davies CEng, FIMechE