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HOUSTON BUSINESS REVIEW

Five Essential Elements in the Value of a Business: First in a Series on Strategic Planning
By Gary Cooper

GARY N. COOPER, C.P.A., C.V.A., is managing partner of Cooper, Bergman & Company, L.L.P., certified public accountants which was formed in 1991, assisting small businesses and individuals with accounting, consulting and income tax planning and compliance. Services provided include medical practice consulting, business valuation, assistance with buy/sell transactions, development and implementation of policies and procedures, accounting services and tax compliance and planning. The Company has offices in Plano and Houston, Texas.

The goal of today’s business owners should be to drive the value of their business. This is accomplished through sound planning, establishing benchmarks, measuring results and executing changes that will generate effectiveness throughout the organization. An appropriate benchmarking and monitoring system will also identify failures in the execution that would eventually diminish the value of the company. Management must be able to drive the company’s value by enhancing productivity derived from a strategy effectively executed through the company’s people and systems.

We believe the following characteristics are important to owners who want to increase the value of their business.

1. Quality of management.
2. Human recources.
3. Strength of your market position.
4. Customer satisfaction.
5. Quality of your products and services.

We have the following conclusions from the above listed characteristics:

1) Management is the most important characteristic because management can have a material effect on the other characteristics. Good management can perform sound planning and effectively execute strategy.
2) The personality and production of a small business is greatly affected by its personnel. A single hiring mistake can have ripple effect throughout the entire organization.
3) Market position is driven largely by customer satisfaction. The products and services must meet customer’s expectations. Target markets must be identified and effectively drive revenues.
4) Most small businesses are built through the referral network. Customer satisfaction will lead to new business and growth.
5) Identify the products and services that fit your marketplace. No matter the market, customer expectations must be met.

The opportunity for creating maximum value is increased substantially when management focuses its activities on the most important success factors of the business. Therefore, management should:

1) Determine its business strategy.
2) Identify the critical success factors for that strategy.
3) Identify the key performance indicators related to those critical success factors.
4) Establish performance benchmarks for the key performance indicators.

Only by focusing management’s limited time and the company's limited resources on the critical success factors can management create maximum value in the business.

After the plan and strategies are implemented they must be monitored and measured. This requires analyzing results with defined benchmarks that should be easily generated from the company’s management information systems. Comparisons should be performed at regularly defined intervals.

Next week we will examine the four dimensions of value and the important role they play in the pursuit of sound strategic planning.