How to enhance your company’s value?

“Value enhancement offers tangible results.”

The COVID-19 crisis is hitting our economy hard, threatening the survival of many SMEs in particular. Making it through the current phase of the crisis will depend on cost reduction, improved productivity, product adaptation and business optimisation. These serve not only to increase a company’s profitability, but also its value. BDO has developed a hands-on Value Enhancement method to sustainably enhance companies’ value.

Authors: Maxime Chalot, Senior Manager, Koen Claessens Partner BDO Advisory

Despite governmental support measures, one in five of all small and medium-sized companies is in danger of going bankrupt. This was revealed, among other things, by a recent report by the Federation of Belgian Enterprises. The underlying cause is often a lack of solvency or reserves. “In addition, the pandemic has accelerated certain developments, such as digitisation, and some companies may go under because they lack the necessary resources or expertise,” say Maxime Chalot and Koen Claessens. As seasoned BDO experts, both are well aware of the bottlenecks to be overcome by any company wishing to ensure its continuity, growth and future post-COVID-19.

What is ‘Value Enhancement’?

Maxime Chalot: “Value enhancement is not just about financial results. It also involves how a company adjusts its strategy in response to economic developments that affect its business. When optimising a company, insight into how much the company is, and can be, worth is a useful strategic tool. It allows for the derivation of highly-targeted actions with which to achieve lasting improvement.”

“Our expert serves as a Swiss army knife. Not just with theory, but with specific actions.” – Maxime Chalot, Senior Manager BDO Advisory

Are there different drivers for the pursuit of value enhancement?

Koen Claessens: “There are indeed. Improved profitability is a big one. There’s also the desire to sell the company or a part of it, to prepare for reorganisation, an expansion or a merger… The corona virus crisis also exacerbates certain drivers, such as available cash and taking control of debt. To maintain – or even increase – the company value, many companies want to reduce costs, improve processes and efficiency, and eliminate outdated or currently inappropriate departments or activities… Anything to help them weather the crisis.”

Maxime Chalot: “It is important to stay calm, not make hasty decisions – and above all, to adhere to the company’s long-term core objectives, adjusted or not. Preparation is half the battle. That sounds obvious, but it’s often underestimated in practice.”

Doesn’t the pandemic also offer opportunities?

Maxime Chalot: “A correct, accurate view of the business value allows entrepreneurs to invest wisely – in digitisation, for example – or to adjust product or service offerings to customer needs.”

Koen Claessens: “Our Value Enhancement approach is based on six steps, with a 360° diagnosis (Step 1) as the foundation. We assess the company and identify the specific value drivers for every aspect of its business (strategy, finance, IT, HR, innovation and product management, sales and marketing, management).We first need to obtain an accurate idea of all of the business activities – up to and including the corporate culture – to be able to identify key points for improvement to increase the business value (Step 2). Compare this to renovating a home: before you start, you want to know both what it is worth now and what it could be worth.”

Maxime Chalot: “We notice that bringing in an independent party (BDO in this case) leads to a more objective diagnosis. Someone from outside the company culture can more easily uncover hidden parameters, agendas or levers. Furthermore, this external party can call on extensive, multidisciplinary expertise for a thorough examination of all of the various areas.”

“I am often amazed at how much extra value minor actions can create.” – Koen Claessens, Partner BDO Advisory

Doesn’t a diagnosis often fail to progress beyond ambitious plans?

Maxime Chalot: “You have a point. How do you design specific actions based on that diagnosis that will actually be carried out (Step 3)? In fact, this is our experts’ core task. We act as the company’s Swiss army knife. Medium-sized companies are often family businesses and they don’t always have all the necessary expertise in-house. Besides, everyone already has their hands full with their daily operational tasks. We work in close partnership to determine what actions will create the most value and translate these into a specific action plan. One that is pragmatic and feasible, of course. This may or may not require our experts’ organisational, strategic, financial, legal and tax support. A hands-on plan that isn’t just based on theory. Measurable, too.”

How invested is BDO in the plan’s success?

Koen Claessens: “Our experts serve as a temporary addition to management and the workforce, as it were, agreeing on what objectives (Step 4) we want to achieve within a 6- to 12-month period. For this part of the job, we commit our efforts and our reputation to the degree to which the specific actions yield concrete results and satisfy the objectives (Step 5). In this way, we join our customers in their enterprise. And that can be extremely satisfying.”

Maxime Chalot: “However, be aware that nothing will be achieved without the goodwill of the company’s employees. To create sustainable change and establish a transformation as part of the company culture, support at all levels is vital. Hence the importance of continuous evaluations and reports. Interim or final evaluation exercises (Step 6) allow entrepreneurs to determine the effectiveness of the valuation as a base for their operations.”

What are common pitfalls in the process?

Maxime Chalot: “The project must have the support of all shareholders. If one shareholder isn’t on board or demonstrating sufficient commitment, the employees will also opt for the easiest course of action and stick with the status quo. Other barriers to success include failing to properly explain the change and clarify how it fits in with long-term plans, or being dismissive of criticism.”

Koen Claessens: “It isn’t always necessary to turn a company upside down to make it better. Sometimes I am amazed at how minor actions and interventions can add so much value.”

Why opt for Value Enhancement?

  • How do I increase my company’s value?

  • How do I increase my company’s profitability and productivity?

  • How do I achieve my company’s objectives and translate these into specific actions?

  • Should I expand my company internally or externally, and how do I handle a takeover?

  • Should I sell part or all of my company, and at what point?

  • How do I prepare my company to face the anticipated changes worldwide?

  • What will the long-term effects of COVID-19 be, and how can I manage them?

Value Enhancement: 5 benefits

  1. Based on measurable facts and figures
  2. Hands-on, pragmatic, specific
  3. Access to expertise that is lacking in-house
  4. Proven approach
  5. Shared risks (BDO is committed to results)

Garage Monnier – ‘Continuous adjustment’

“I still have plenty of years to go and there’s a third, younger generation coming up,” says Fabrice Monnier, who owns a garage of the same name in Hainaut. Market conditions have forced his company to look further into the future. “Thanks to the market’s rapid rate of change, brands have to evolve very fast. Anyone without a vision for the future, who isn’t capable of developing a long-term strategy, is doomed to fail.”

In light of the difficult market, the garage had two options. The first was to get out, so sell the business. “Alternatively, you adapt, look at your company’s size, and identify and mitigate weaknesses.” The family examined its business closely and then used a valuation as the foundation for a series of interventions. “We wanted to ensure stable future profits in the face of market pressures. Furthermore, we wanted to explore how to properly manage a company of this size for our market.” They succeeded.

Read the full story (in Dutch). 

Imprimerie Bietlot – ‘Market positioning’

The printing sector is seeing a rise in the numbers of bankruptcies as work volumes drop. In light of this, Imprimerie Bietlot in Gilly decided to have a valuation done. This was followed by a 6-month process to optimise how they run their printing company. “We have no plans to sell at the moment,” emphasises CEO Eric Guillaume. “On the contrary. We’re doing this to ensure our company’s continuity. A valuation can help you reflect on your market positioning. Banks or potential investors often ask questions on the subject. It is important to be able to demonstrate that your company does indeed have a specific market value.”

The analysis indeed revealed several points for improvement, both practical and within the family. For instance, the printing company needed to work on its inventory management and outline a stricter paper purchasing policy. “In barely six months, we managed to reduce our inventory by half. That had an immediate impact on our results.” This was only one of several improvement initiatives.

Read the full story (in French or Dutch).

Would you like to know what value enhancement can do for your company? Are you looking for help with the analysis of your situation? If so, please do not hesitate to contact the specialists from our Value Enhancement team: value.enhancement@bdo.be and watch our video.