Creating a Valuable Business

1. What is Value?

1.1 A valuable business typically offers growth, profitability and security.

• Growth and security are covered in 2 and 3.
• Profitability is covered in the separate briefing, see Increasing profitability.

1.2 Creating a valuable business generally requires a medium or long-term strategy.

• In the short term, creating value usually requires investment.
• Short-term methods of increasing cashflow and profitability can reduce your potential for creating value in the long term.
• Long-term strategies are usually riskier. Their eventual outcome is more uncertain.
• If you plan to sell your business, the value will be higher if you can show a strong track record over time.

1.3 Different stakeholders may have conflicting objectives.

• Some shareholders value a business that offers high, secure and gradually increasing dividends.
• Other shareholders may accept more risk for higher growth potential.
• Directors and employees may have their own agendas (eg generous contracts, career opportunities or job security).
• The local community may value a business that is environmentally responsible, or contributes to the community in some way.

1.4 Your strategy will have a better chance of being successful if it includes measurable objectives.

• These are likely to include ways of measuring the overall value of the business.
• Set intermediate targets for what you aim to achieve in different areas of the business (see 4 to 7).
• Include realistic timescales for the completion of these objectives.