Benchmark to Build Business Value
As part of our initial investigative work with clients businesses and to help in preparing due diligence and valuation reports we inevitably undertake a benchmarking exercise to measure performance of the business against industry averages and for comparison against competitors in the marketplace. On every client we have benchmarked we have been able to identify the following :
1. Key areas of the business to be improved (value drivers)
2. Areas of concern – for example areas where expenses might not be as well-managed as they should be. Or an area where costs have grown out of proportion to the remainder of the business.
In a recent real estate client we worked with in Southern Sydney we were able to identify two additional staff over and above that which was required to run the business based on average industry performance. This led to substantial cost-cutting within the business leading a dramatic improvement in profitability and therefore a substantial increase in the overall value of the business as well.
Benchmarking as part of an overall business succession planning strategy is important and if used correctly can add substantial value to the process by helping business owners identify areas to focus on. In our experience business owners are unable to make major improvements to 50 or 60 areas of the business and so we use benchmarking to accurately highlight those areas where the most benefit will be gained – say 3 to 5 key value drivers.