16 Dec Robust internal systems can add value to your business
If your goal is to optimize the value of your company and make it more attractive as an acquisition target then consider the internal systems that help you run the business. You should systemize as many of your processes as possible and invest in systems that capture knowledge and help your company run efficiently. There are a number of benefits that flow from having robust business systems.
One is they will help your company deliver more consistent results and reduce its dependence on the owner or any particular individuals. In a prior post I wrote about the importance of grooming a management team. This is a similar point: it makes your company more attractive to a buyer who is usually thinking about minimizing the risk of buying a company and building on the foundation made by the owner/founder.
Good internal systems capture some of the “know how” in a company and minimize the risk of employees “owning” value that they can take with them. For example, sales people may “own” customer relationships, engineers may “own” important company technical skills, and managers may “own” their entire team. Systems that encourage teamwork, share knowledge, and make employees easier to replace are vital to building a sustainable business. You may also want to include non-compete clauses in your employment contracts to give you additional protection.
Another advantage of having well-designed systems and standard procedures is they are easier to use and more scalable as you grow. If you often have to make one-off, ad-hoc decisions you are probably limiting your ability to grow. Firms with a strong owner-manager are particularly susceptible to this limitation. You don’t have to use the latest technology in your business, but in some cases outdated technologies may actually inhibit productivity and reduce employee satisfaction.
Once you have your basic business needs in place (e.g., marketing, sales, service delivery, accounting), consider buying or building management information systems to monitor the business and help you predict the future. These include financial dashboards, sales pipeline management and forecasting systems, and customer satisfaction measurements. If a buyer looks at two companies with similar sales and earnings, the company with stronger internal processes and systems is usually going to be much more attractive.