Every business has ‘value drags’ and ‘value drivers’, and capturing these can help you mitigate elements of your business that are holding back value while enhancing those elements that really attract buyers.

We use the concept of value drags and value drivers with our clients when building exit strategies, and whilst definitions may always vary, here is what we mean by the terms:

• A value drag is defined as something within your business that may cause an eventual buyer to reduce the amount that they are willing to pay for your business.

• A value driver (you guessed it) is defined as something within your business that may cause an eventual buyer to increase the amount that they are willing to pay for your business.  

These definitions differ from others we have come across which are focused on what drives profitability and what detracts. Whilst both are valid - and the same item might fit both definitions - we take a purist view focused on valuation alone.

You should always be resolutely clear on your value drags and value drivers; list these out in a pair of tables. Your column of value drags should sit alongside a column that sets out what you plan to do to reduce or mitigate these drags, and your value drivers should sit alongside a column that sets out what you plan to do to enhance these drivers. A well-developed document should also seek to measure the relative impact of each drag and driver so that you can prioritise your efforts. Always reach for the longest lever first - by that I mean the action with the greatest ratio of impact to effort. Finally, having a column setting out the progress that you have made, next steps and responsibilities can elevate your document into an actionable plan.

So what sort of things classify as value drags and value drivers? It is very difficult to give any type of definitive list as they are unique to each business but some examples below:

Possible value drags:

• Under invested facilities;
• Long term restrictive contracts;
• End of life or nearing end of life products;
• High staff turnover.

Possible value drivers:

• Technical ‘moat’ around service or product offering;
• Highly skilled staff with high retention rates;
• Highly recognised brand;
• Strong product roadmap.

No doubt there are many, many more examples but your own exercise, supported by an advisor who understands what the market is looking for in your sector, will develop a bespoke list that will ensure you are applying your efforts in the correct way in order to obtain the greatest return when you sell your business.

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