Technology plays a role in many aspects that impact the overall value of the company: operations, capabilities, strategic positioning, agility, scalability, employee and customer experience, and even how you are perceived from an M&A perspective (elements such as the cost of upgrading an acquired organization and the ease of integrating business systems should always be considered when discussing an acquisition).
Even if you are not looking to sell or merge your business, adding value must still be an important strategic objective if you are to remain attractive to new customers and potential investors.
What to look for
When business owners assess the value of a business, they generally base it on its financial strength (net income, revenues, costs, assets, etc.). The potential for technological development is often given little consideration, when in reality there can be a big impact on agility, efficiency, reduced overhead, etc.
Here are a few examples of elements to be verified at the technological level before proceeding with the purchase of a business:
Has the company’s IT infrastructure been properly invested and maintained? Is it up to date in terms of technology standards and how it meets the company’s needs? Does it deliver reliable performance? Does it enable employees to be more efficient or does it hinder performance due to downtime and inconsistency? Does it enable adaptation to new business opportunities? One of the elements that are often underestimated when evaluating a company’s technology infrastructure is ERP (Enterprise resource planning). An ERP can greatly increase the value of your business. If you are considering implementing an ERP, be sure to include an ERP consultant to accompany you.
In the face of increasing cyber threats, has the security of company data been a priority? Have best practices been established for handling sensitive information? Are appropriate systems in place to secure communications and data? Are access controls in place to ensure that only authorized individuals have access to data? Is the company in compliance with applicable industry regulations, such as HIPAA or PCI? (And, in case you think this isn’t a big deal since security can always be improved after an acquisition, keep in mind that Verizon reduced its bid by $350 million after the massive data breaches of Yahoo’s customers were made public).
Process Alignment and Automation :
Has the company invested in aligning its technology with its business processes? Has it worked to automate and streamline operations using technology? Has its strategic use of technology resulted in increased profit per person over time?
Looking to the future :
A company’s success does not always depend on past financial measures; it is also important to consider how the company has evolved to position itself for tomorrow. Have they invested in new technologies to streamline operations, increase capacity and improve scalability?
A company’s long-term strategy is not necessarily evident in the income statement; for example, a company that is generally reducing expenses to achieve a short-term profit margin is not nearly as attractive as a company that has adequately invested in systems that will improve productivity, streamline operations, and enable rapid change in the future. These long-term strategic investments are far more profitable than short-term profit margin targets.
We understand that you may not want to sell your business in the short term, but it is always beneficial to operate with a mindset focused on growing the value of the business. To achieve this, you need to think about how you can use technology to your advantage over the long term to streamline operations, differentiate yourself and reduce costs over the long term. This will allow you to increase the value of your business over time while making you more competitive.