Some only like hard-boiled eggs, others soft-boiled! Hard-boiled and soft-boiled eggs or factors also exist in business valuation. However, no one is well advised to only pay attention to one or the other. For an optimal enterprise value, the hard factors must be fundamentally good and sustainable. But the soft factors also play an important role in increasing the value of the company.
Hard & soft factors in business valuation
The value of a company is determined by a large number of influencing factors. These influencing factors are basically divided into so-called hard or quantitative factors and soft or qualitative factors.
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Hard factors for enterprise value
The hard factors are key business figures (including turnover and return on sales, EBIT, cash flow) that can be read or calculated directly or indirectly from a company’s financial accounting. They provide the essential numerical basis for various financial theory models for calculating the value of a company. How to calculate the Calculate enterprise value, you will learn here.
Soft factors for the company value
The soft factors include those influencing variables for which either no key figures are available or, at best, auxiliary indicators that can be used to assess their qualitative significance for the company. For the time being, they are not taken into account in the calculation of the enterprise value with financial theory models.
Nevertheless, they have come increasingly into focus in recent years. And not without reason. Apart from the fact that they sustainably increase the quality ? and thus also the competitive situation ? of a company, their importance has increased significantly both in the rating of banks in the course of loan approvals and company purchase price financing, as well as in the determination of company purchase prices. This also applies to small and medium-sized craft enterprises! The standard procedure recommended and used by the Chambers of Skilled Crafts and Small Businesses for the Working Group of Valuation Consultants in the Skilled Crafts Sector (AWH), soft factors are taken into account.
Below we present three soft factors as examples and give you tips on how to implement them in your company.
Owner independence
Most medium-sized enterprises are characterised by a strong entrepreneurial personality. These have led the company to success due to their special knowledge and skills. Along with this, the processes in the company are often tailored to this person. This applies in particular to the specific product know-how, the quality of customer relations and the decision-making processes. But it is precisely this focus on a single person that is associated with a particularly high risk for potential successors or investors. What happens when the old entrepreneur leaves? Who will ensure further product innovations and stable customer relations?
In order to make a company attractive for sale attractive, appropriate measures must be taken to reduce dependence on one person dependence on one person as much as possible. How can this be done?
- Reinforced Transfer of responsibility and decision-making powers on the individual employees according to their skills,
- If possible, the establishment of a 2nd management level or ? where it is size-dependent prohibition - building up a competent Deputy position,
- maintenance active knowledge transfer from entrepreneur to employee and the employees among themselves,
- Willingness to provide sufficient Transition period (1-2 years) or a Advisory or advisory board function.
Clearly formulated corporate strategy increases the value of the company
People who have a goal usually achieve usually achieve more in life. The same is true for companies. Therefore you should regularly review the strategy of your company, adapt it to new developments and document them. This can be done by:
- Regular dates for Development or review of the Corporate strategy,
- Inclusion of managers & professionals in strategy development,
- Definition of the resources required (money, personnel, know-how),
- Determination Key figureswhich can be used to check the achievement of the planning is verifiable,
- detailed Documentation of the strategy process and the results.
By developing the corporate strategy with your managers or competent employees, you automatically increase the sum of aspects to be considered when aligning your company. At the same time, by documenting them, you create a standard of comparison. This provides information about the extent of the deviation from the later actual situation. From this, conclusions can be drawn about any incorrect planning assumptions and optimised for future planning.
A potential buyer will immediately recognise that your company or product strategy is future-oriented and is regularly reviewed and realigned. This contributes significantly to the value of the company.
Company value increases with employee qualification and retention
The most important capital of any company is its employees! Everyone knows this, but it is far too rarely practice far too seldom. Due to the increasing comparability of products on the internet and the increasing demands of customers, the quality of the quality of products and all related services is of particular importance. importance. This applies equally to the innovative strength of a innovation in the creation of new products or the improvement of existing ones. products as well as all internal services. In this companies can only position themselves well in this competition if they have particularly qualified qualified employees and are able to retain them for as long as possible. retain them for as long as possible. Particularly in view of the increasingly increasingly acute shortage of skilled workers, this is an area that every entrepreneur must entrepreneur has to deal with intensively.
It is even more important for an investor or buyer of the company, because he is particularly dependent on the on the willingness to perform and the abilities of the employees. employees. This is particularly true with regard to the managers, but of course also for all other employees. In order to ensure a high qualification and a long period of loyalty to the company. it makes sense:
- In the Corporate culture (keyword: recognition, interpersonal interaction, open & respectful communication, etc.),
- regular Further qualification of the employees,
- Motivational strengthening through remunerated and non-remunerated incentives,
- Attractive and customisable working conditions.
Conclusion
In addition to the hard factors such as turnover, EBIT, etc., the soft factors also have a not inconsiderable importance for the final amount of the sales price of a company.
A strategic plan and perseverance are needed to build up or improve these soft factors. However, you as the entrepreneur are always the winner, regardless of whether it is the future success of your company, the rating with banks or the achievable purchase price for your company.
Tips for further reading:
5 important trends in business succession in 2019
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Professional support for emotional company successions
Image: © Barbro Bergfeldt ? Shutterstock.com
Hard factors - These are business ratios that can be read or calculated directly or indirectly from financial accounting. They provide the numerical basis for various financial theory models for calculating the value of a company.
Soft factors - In most cases, there are no key figures available, or at best only auxiliary indicators that can be used to assess their qualitative importance for the company. Nevertheless, they have gained in importance in recent years. Both in the rating of banks in the course of loan approvals and company purchase price financing, as well as in the determination of company purchase prices.
By developing a corporate strategy, you automatically increase the sum of aspects to be considered when aligning your business. At the same time, you create a standard of comparison by documenting them. This provides information about the extent of the deviation from the later actual situation. From this, conclusions can be drawn about any incorrect planning assumptions and optimised for future planning.
1. into the Corporate culture invest
2. Regular Further qualification of the employees,
3. Motivational strengthening through remunerated and non-remunerated incentives,
4. Attractive and customisable working conditions.
Companies can position themselves well if they have particularly qualified employees and can retain them for as long as possible. Particularly from the perspective of the ever worsening shortage of skilled workers, this is an issue that every entrepreneur must address.