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Mazars explains what value means for a successful business

11 November 2022

Mazars points out that managing a successful business requires consistent drive and ambition to create long-term shareholder or ‘capital’ value.

Mazars translates "value" as an adaptable element in the entrepreneurial world.

Mazars explains that what constitutes value for a business is not universal, rather, it is something that is determined by each individual company, in line with their own ideals and vision. Hence, it is imperative for each business owner to articulate their own definition of value, by stepping back and reflecting upon their company culture and the context of their strategy. In addition, the value of a company cannot be expressed only by its profitability.

Mazars is considering the key drivers of business performance, such as:

the strength of the management team,
the team cohesion,
the quality of the product offering,
the market position,
the efficiency of the business operations,
and the primary business model operated.

These combine to magnify the effect of the factors already in place, and the difference they make to total capital value calculation can be substantial.

Starting the conversation

Mazars defines three common strategic situations which trigger crucial conversations around value:

Growth and expansion
Exit planning for a future sale
Transitioning the business to the next generation

If the strategy is to build up the business for a sale in two or three years’ time, for example, value means getting the optimum exit price of the business. However, if the strategy is to make sure the business is in the best possible shape to pass on to a family member, value might be more about ensuring the systems are robust and the right operational structures are in place to ensure longevity and continuity. When discussing value, clearly identifying that strategic intent upfront is vital. It becomes a guiding star. Something owners can stay focused on throughout the natural ups-and-downs of putting the business strategy into action.

Turning strategy into action

Once value has been defined, the next step is to identify the operational actions or value levers required to deliver this goal, linking back to the overarching strategic intent and strategy.

Value may change over time as the strategy of the business evolves. A business may move from a pure growth strategy to an exit strategy and the value levers to deliver will change accordingly. Revenue may need to be rationalised, costs cut, and client lists trimmed, for example. Once a business starts implementing the appropriate value levers, it is essential to keep monitoring and measuring performance, to make sure these levers are delivering the intended outcomes.

Growing in value is unlikely to be a smooth upward performance curve, so it is important to stay focused on the longer-term strategic intent and not get distracted by short-term difficulties. It is also important to give strategies and actions enough time to show results. It’s not a case of implementing the strategy and then waiting three years to see if it has achieved the desired objectives - build regular check-ins on how it’s performing, what’s not working, and what can be improved.

Clarifying the value to achieve and identifying the right strategy to help the business do so is critical in achieving the strategic intent, and ultimate business objectives.

Source: Mazars