Increase the Value of Your Company

by Mark Friedman

Leveraging the value of your Sales Force Automation (SFA)/Customer Relationship Management (CRM) systems to more effectively deploy sales lead management can all contribute to increasing a company's overall value. While some people consider these areas to be mostly tactical in nature, many others are recognizing the strategic importance of implementing best-in-class Sales Lead Management techniques.

There are many methods that are used to determine the value of a company
1.  Market Replacement Value - the value of comparable businesses
2.  Income - historical, current and projection of company's profits
3.  Asset Value - the value of the company's assets

One of the most important factors considered when evaluating the worth of a company common to each of these methods is the quality and performance of the management team. Repeatability, consistency, process, procedures and proven systems are all signs of a superior management team and contribute to the increased valuation of a company by investors or buyers.

Having these systems and processes in place reduces the risk for the acquiring company by ensuring the purchased company is not solely driven by the owner's drive, personality and personal contacts. If the owner is no longer part of the management team, the company can still be counted on to produce the financial results the acquiring company anticipated and paid for.

In traditional manufacturing, the business value of "process" is well understood. People can appreciate that the value of an automobile manufacturer is not in the ability to produce a single high-quality car. It is in the reliable and repeatable ability to create a large quantity of high-quality cars at a predictable cost. Companies that apply the same discipline to their Sales Lead Management process demonstrate significant sales and profit growth and outperform their competition on a regular basis.

A company with proven Sales Lead Management processes, procedures and systems, will be able to demonstrate the following over a long period of time:

1.    Increased sales results
2.    Increased sales productivity
3.    Increased predictability of revenue and profits
4.    Increased consistency of revenue and profits
5.    Growth of customer base
6.    Accurate, tightly-controlled Central Database of customers and prospects

Regarding this last point, two areas of concern emerge. Many smaller companies without a strong centralized customer and prospect database, rely on the owner or some other individual within the company to "remember" pertinent account profile and contact information regarding their customers, or which prospect to call next month; information is in their head has not been transferred to a database. If this is the case, the acquiring company will not be able to leverage the value of the customer or prospect base as quickly as possible which can negatively impact revenue and profit generation. Sales and Marketing programs will not be as effective and the sales effort will suffer. Once this happens, the anticipated ROI calculations an acquiring company uses to justify their purchase may be compromised.

Secondly, if the company has not developed a central customer and prospect database, the account relationships actually "belong" to the sales rep calling on that account and the company is often unaware of the account profile as well as contact information regarding the account. This can have a very negative impact on sales and profits if the sales rep chooses to leave the company. The relationships developed over time with these valuable accounts will transfer with the departing sales rep in many cases. As a result, once a new sales rep is hired, their ability to generate the originally forecasted revenue from the territory will be greatly reduced.

Therefore, it is critical to tightly manage a centralized customer and prospect database and transform it into a corporate asset in order to command the highest company value.

To illustrate my point, I was talking to a couple of companies that specialize in corporate valuation. One of them, Axiomate, is an international corporate investigation and due diligence organization serving investors, entrepreneurs and bankers. As part of their evaluation of a company to determine its value, they ask the following questions:

Sales Management Process

• Is there a formal process for managing sales activity?
• How are leads managed? What happens to "dropped leads?"
• Does the company have an understanding of its cost of leads?
• What marketing activities have the lowest cost of leads?
• What marketing activities produce the most qualified leads?
• What tools are used to manage the leads?
• What metrics are documented and reviewed? Frequency? Audience?
  

Pipeline / Lifecycle

• Does the sales pipeline provide an adequate forecast of future sales?
• How long is the sales cycle? What does it cost to produce a sale?
• Is the pipeline realistic given our review of accounting and customer support?
• What is the percent variance of forecasted sales versus actual?
  

The answers to these questions help determine the quality of the company's systems and management team.

A principal at another company involved in company valuations (David Martin, Management Resource Center) confirmed that when evaluating the worth of a company, these factors are excellent indicators (among others, of course) of the quality of the management team. Not only can a higher quality team command a higher valuation, the well-run company can also serve as a foundation company for future acquisitions.

Mark Friedman is a Partner with and an Interim Executive for Cerius Interim Executive Solutions, the largest provider of Interim Executive management services.  

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