Hidden Millions / Why Your Margin Strategy Could Transform Your Exit Value
The Strategic Buyer Matrix
Every day companies operate in a state of accumulated margin improvement or accumulated margin deterioration, as daily pressures continually work to erode increasing profits. In this article we show how Investing in a 'margin department' before you sell can increase your valuation by millions.
Data is the key
Currently in a lot of SMEs, everyone has some responsibility for the company's data (Ops, Finance, MD) - it is spread across many half-built excel files on each employee's computer. This usually means the data never fully delivers what it has the potential to - as the saying goes, "where everyone is responsible, no one is responsible."
Having someone who knows which data is good margin data, how to use a data cleansing software and what missing margin data to look for is a key component in this process.
A fundamental risk is that the wrong people are being tasked with collecting and analysing data, and this is where unintentional bias creeps in.
Develop a 'Margin Department' Mindset
Roland, (our Margin Transformation expert) advocates developing a 'margin department' mindset across the business. This is the idea that at every meeting someone is responsible for just, margin in the business. Rather than everyone having margin as a secondary task they are measured on. This person is just judged on margin and changes that improve the business margin…”What gets measured get's managed”.
“Marginal gains is not about making small changes and hoping they fly. Rather, it is about breaking down a big problem into small parts in order to rigorously establish what works and what doesn’t.”
Make it usable and suggest simple actions
To get results the 'margin department' need to deliver simple BI reports and a list of marginal actions that can be made across the business. Power BI is a wonderful tool but too much noise and data can stop action.
The Margin Transformation Process
At Alinea, we have the system, processes and software to make sure our clients do not leave unattained margin in their businesses. Our process is outlined below:
Centralise and clean the current margin data. This process allows us to get to know our client’s business and find the margin 'blind spots'.
Collect the margin data. Having reviewed all the current data, we physically collect and input all the missing margin data using our software. This includes packing time, energy consumption, clocking in time, production processes, office order taking time. Everything.
Find the margin wins. With the above completed, we find margin wins for the client (as well as an estimate cost to make the changes).
Deliver a report. The margin actions are delivered in a BI and PDF format for discussion and development.
Make the changes. if there are projects, we can support then they are on hand to help where needed to make sure the jobs get done and are not left on a to-do list.
Conclusion
Margin is a key driver of business but so often is not fully maximised as the day to day running of a business takes (rightfully) priority. However, as companies prepare to sell, this 'unattained margin' has the potential to impact the price companies are offered.
In the simplest terms, For every £100,000 of unrealised margin in your business, you could be reducing your exit value by hundreds of thousands - or even millions - depending on your sector's valuation multiples.