Owners who want to sell their business are often facing the biggest transaction of their careers—and are confronted with a number of questions, such as: “What do I need to consider when selling my business?” or “Where and how can I best sell my business?” To ensure that a lifetime’s work changes hands at a fair market price rather than below its value, the company’s value must be accurately determined.
Creativity, work environment, public reputation: Why soft factors are fundamental to assessing a company’s value
In addition to financial metrics such as revenue, growth, and risk, non-monetary factors play a particularly crucial role in an accurate assessment. The range of these “soft” aspects—which are typically ignored in traditional valuation approaches—is as diverse as it is significant.
On the employee side, these include:
• Creativity and competence
• Social engagement and environmental sustainability
• Work environment
• Adaptability in the digital age
On the other hand, from an external perspective, other soft metrics must be taken into account:
• Relationships with customers and suppliers
• The company’s public reputation
• Efficiency of internal processes
• Ability to anticipate future risks
Employees determine the company’s competitiveness, innovative strength, and success
Intellectual capital—that is, the creativity and expertise of the workforce—is of central importance. As demonstrated by the shortage of skilled workers and managers—a problem primarily observed in medium-sized family-owned businesses—young talent is a scarce resource. Yet it is precisely these individuals who determine the company’s competitiveness, innovative strength, and success.
An organization’s ability to recruit the next generation of high-performing professionals and retain them long-term is a fundamental factor in corporate valuation. It is becoming increasingly clear that a company’s attractiveness in the labor market is defined only in part by salaries and job responsibilities.
In particular, the values the company upholds regarding socialengagement and environmental sustainability are criteria that the new generation considers when choosing an employer. Anyone who wants to successfully attract the bright minds of tomorrow must enable them to identify with the company’s own values.
In addition to the beliefs the company publicly espouses, the work environment also determines the company’s attractiveness and thus its corporate value: For 17- to 25-year-olds, the most important criteria when deciding on a future employer are not monetary factors such as an attractive starting salary and high earning potential. Far more important are a positive work environment, the sense of fulfillment derived from the job, and work-life balance. (see de.statista.com)
A company’s value today continues to depend on its adaptability in the digital age. The focus here is not only on the speed with which more efficient and modern technologies are integrated into business processes.
Adaptability also means aligning corporate culture with the spirit of the times. Moving away from established leadership styles and organizational structures is an important part of this dynamic, as evidenced by employees’ growing preference for flat hierarchies and flexible work schedules. Stability in times of crisis and opportunities for continuing education are further aspects of an employee-oriented corporate culture, which, according to a study by the Federal Ministry of Labor, can account for one-third of pre-tax profits.
Relationships with customers and suppliers, among other factors, influence the non-monetary valuation of the company
Within the stakeholder approach, in addition to employees, relationships with customers and suppliers, the company’s public reputation, and its relationship with the government are decisive factors in corporate value. Are there strong dependencies on individual suppliers or customers? Is the shareholder structure concentrated among a few owners?
There are numerous individual factors that determine a company’s value. The efficiency of internal processes is also a central component of the non-monetary valuation framework. Last but not least, the ability to anticipate future risks and respond appropriately—such as protecting intellectual property through patents—influences the company’s valuation.
Read this article to learn what steps are necessary for a successful company sale.
