Measuring Your Company’s Value Growth

COVID-19 illuminated a vital, frequently missed truth: to develop, defend, and sustain organizational value, leaders must consider a far broader and more diversified collection of stakeholders than shareholders.

The most successful businesses recognize that any firm’s goal is to produce value for customers, workers, and stakeholders and that the interests of these three groups are inexorably interwoven. As a result, creating value for one group requires creating it for all of them. The primary focus should be to create value for clients, which cannot be accomplished until the right people are hired, trained, and rewarded, and investors obtain consistently attractive returns.

A company valuation may be required for various reasons, including new investors, lawsuits, inheritance, sale of the firm, partner exit, public offering, or net-worth certification. As a result, there is no one formula for calculating the worth of a company.

The growth rate is significant because it informs you how much an asset, investment, portfolio, or business increases over time and allows you to forecast future growth. The rate of growth can be used to represent:

• The percentage change in total turnover from one year to the next
• A company’s success and projected future growth
• Other assets and investments are projected to expand in the future.

Ways to Measure Value Growth

Check how your company is doing: Examine every aspect of the company. This entails reviewing its finances, assets, liabilities, and other aspects. Finally, you begin the valuation procedure to determine accurately how much the company is currently worth on the market.

Defining value entails identifying and prioritizing stakeholders, comprehending how they relate to its mission and strategy, and evaluating them. Learn how to strike a balance between their wants and expectations. Effective stakeholder involvement provides a wide range of insight into issues most important to the company’s resilience and crucial to its long-term success.

Keep track of your finances: Managing a firm entails considering myriad stakeholder interests and other issues that may eventually, if not immediately, affect financial performance and shareholder value. Balance sheet accounting, vital in planning for and managing tough times, cannot fully capture performance and value.

Calculate how much money your firm receives each month from all sources to assess performance and value. Then identify all expenses your company incurs each month. Third, compare these two sets of figures to see opportunities for improvement. Finally, to aid in value creation, develop an action plan to lower costs and generate higher revenue.

The three main factors driving a company’s value are earnings, growth, and risk. Take a look at your three value drivers: how are they doing?

1. Earnings: Buyers look for consistent profit generation and see earnings volatility as an indication of unreliable returns. The history of a business shows how it has functioned over the years regarding profit. A buyer assesses the earning potential of a company and how valuable of an asset it would be.
2. Growth: Buyers want to know how the company has expanded in the past. They also want proof that it will continue to develop in the future. As a result, they are frequently ready to pay more for a firm in a high-growth industry or for a company that has demonstrated its capacity to outperform its rivals consistently.
3. Risk: Owners often overlook risks, which harms a company’s value. A buyer cross-checks all figures and looks for risk factors and threats. Although many risks are unpredictable (e.g., COVID-19), some factors are obvious and can be resolved quickly. These include customer relations, operation processes, and industry concentrations. Mitigating such risks directly helps you increase your company’s value.

Get valuations regularly. The worth of a business is critical information for any business owner considering selling their company. Going into a negotiation without knowing how much your company is worth puts you in a position to lose money. Regular valuations help ensure the potential of your business by calculating an accurate value for your company from which you can develop business strategies to increase profit and execute initiatives.

Speaking with a professional value advisor is the best way to get an accurate valuation. If you’re thinking of selling your company, a professional valuation from a certified exit planning advisor puts you in a solid position to negotiate with your potential buyers, who will conduct their valuation before deciding.

Growth Metrics

1. Revenue refers to all monies earned by a business, including sales revenue and income from bank interest or investments. A company’s revenue may grow through increasing sales, adding new sources of income, and increasing the amount of money earned through each transaction. In addition, one can increase revenue by setting defined goals, targeting the right customers, building relations, refining pricing plans, adding products and services according to the demographic needs, offering subscriptions, and understanding the market.
2. Higher profits: Profit margin is a measure that should always be on your radar. It answers important questions, such as whether you’re earning money and pricing your items effectively. Many approaches increase profits by boosting employee productivity, reducing waste, raising prices, streamlining processes, etc.
3. Higher sales: Customers today know their preferences, the market, and their alternatives; therefore, if you want them to choose your product or service, you must pay attention to what they want. Increase sales by better aligning your products and services to existing customers, redefining your target customers, improving quality, lowering prices, and providing good customer service.
4. More customers: The value of your customers is one of the most critical determinants of your company’s worth. Customer profitability analysis and maximization of a customer’s lifetime value are critical to every firm. This requires both retaining existing customers and acquiring new ones. It is vital to maintain continual touch with new and existing clients to grow your customer base. The more value your company can provide, the more likely it will remain loyal. The best way to attract new consumers is to stay updated with new trends and practices.

Conclusion

Measuring value creation in your business will help you understand the market value of your company, eventually aiding you in making the right decisions when reinvesting or selling the business. When building an exit strategy, a business owner must know the company’s value to justify a higher selling price. Also, you can always find room for improvement by comparing the company’s growth to the previous year’s valuation.

Regular valuations showing consistent growth over the years help you make and execute decisions that maintain your company’s healthy presence in the market. Even if you are not looking to sell your business, having buyers interested in it gives the valuation more meaning.

Connect with Quantive to assess the market worth of your firm.