Hidden Financial Value…where do the value creation opportunities exist within my business? How do I find them?
Value can lie in numerous areas and the opportunities are different for every business:
- Sales growth
- Improved margins
- Cost reduction
- Working capital management- improved cash flow/debt management
Of course, these are all obvious. What is not so obvious is where the best opportunities exist and how to realize that value in the most efficient manner. After all, every company has finite financial and human capital resources. Strategically deploying those resources will determine your company’s ultimate success and the value you are able to create.
The first step is ranking the opportunities from the areas above. There are numerous ways to do this. Here are just a few:
- Benchmark sales growth, margins, costs, or other areas against companies in your industry. If your industry is growing at 10% and your company at 4%, then focusing on sales strategy and growth may give you the best opportunity for value creation.
- Look at your processes. If you know that there are fundamental gaps in your processes, those that work for every business, or opportunities for automation, then you know this is likely an area with real value creation opportunities.
Once you have identified the areas upon which to focus, what steps do you take to make the changes necessary to begin to realize increased value?
Change is difficult for most businesses. It is often uncomfortable for employees, it takes extra time and it comes with risk. What happens if we fail?
Here are some tips for increasing your chances of success….
- Someone in a position of leadership should own the process, likely at least at the middle management level
- The leader must have the support of executive management. It is a good idea to assign an executive sponsor to the initiative
- Lay out the steps for change. Establish milestones with a timeline. Create some simple metrics to track progress. Publish results against the milestones
- Celebrate successes, even interim wins. This can be as easy as an email update to key employees and those on the initiative team
- Keep it simple. The majority of the value creation will come from foundational changes. Making it perfect might yield additional value, but the cost-benefit will likely diminish with additional time and/or complexity. Better to realize most of the value and move on to the next best value creation opportunity.
Additionally, the likelihood of success diminishes the more complex and difficult the change is to implement. What should I do if my employees do not have the skills or the bandwidth to drive the change necessary for value creation?
Sometimes it is best to bring in experts who have a solid history of process change and value creation. You may say, OK, but they do not know the business as well as I do or my employees. So, how can they help quickly? This is one reason why it is so important to keep it simple. Someone who is passionate about process change and has implemented change successfully on numerous occasions should be able to quickly identify the best opportunities and develop an executable plan.
CFO Concepts has extensive experience identifying value creation opportunities and implementing the process changes necessary to realize that value.