Innovating for dollars: Factors that decide the value of your business

From the Winter 2017 issue of Canadian Restaurant & Foodservice News

By John Clausen

When it comes to the topic of innovation, there are many important factors about your business that can affect its future asset value. New technology like smartphone apps open up new ways to provide service that can enhance and add to the guest experience, while savvy changes to the menu, tasteful decor and consistent customer service all contribute to creating an evolving business. Innovation is critical for the longevity of your restaurant, and it ensures that your business will stay relevant to guests for years to come. Ultimately, it affects your cash flow, bottom line and overall value of the business you invest so much hard work into. Below, I’ve identified 11 factors that are critical toward maximizing the value of foodservice businesses, whether you’re running your own, selling one off or adding a new one to your portfolio.

Gross profit trend: Determine if the business has improving, flat, declining or erratic gross profit. If your business has a steadily improving gross profit margin, it’ll be valued much more highly than one plateauing or heading into the red.

Revenue trends: Is there positive growth in revenue over a three-to-five-year span? If so, this brings the best results in business value.

Market stability: Market change — especially in foodservice — is inevitable, which means you need to innovate to keep up with it to maintain and grow your market share.

Market share: Maintaining and growing your customer base is key, especially for larger restaurants.

Customer base: Do you have repeat customers who visit your establishment? Engage with them via good social media marketing and customer loyalty programs to enhance your business value long term.

Competition: We all have competition, and sometimes having a number of choices in a given area can draw and enhance the customer base for all. Do you need to compete heavily with similar restaurants in your area or do you have complementary businesses in your geographic locale?

Business obsolescence: Is your business looking faded, old-fashioned and unattractive? Are your menus predictable and not catering to local food and drink preferences? Have you not introduced any new technology to enhance the customer experience and improve service? Your business can quickly slide downhill unless you listen to your customers and watch the competitive and demographic environment.

Overhead and expenses: Control your costs (an all-too-familiar concept in the foodservice industry). Profit margins can be thin, and if costs are allowed to escalate, a successful business can quickly decline.

Capital expenditures: Do you have a well thought-out plan to rejuvenate your venue and facilities? Are you budgeting and planning for replacing tables, or adding a new awning to your patio? Ask your guests and staff for ideas for input to ensure you’re spending your dollars effectively.

Organizational stability: High staff turnover can hurt the value of your business and impede success. Be proactive: develop staff training programs, and ask for their input and act on it. Look at promoting highly motivated and effective staff to ensure retention. Consider bonus programs for managers and key staff tied to business performance and profits.

Regulatory environment: This can also impact your business value, so ensure that you have documented procedures, employee training and feedback systems in place that will minimize the impact of many regulatory issues.

These are a few of the many areas that effect profitability and the future exit value of your business. For a little more insight into assessing your business, check out the Collins Barrow online tool, which allows you to self-test your business’s readiness to sell.

John Clausen CPA, CMA, Acc. Dir. is Senior Vice President, Collins Barrow Durham Consultants Inc. and has over 30 years’ experience working with businesses of all sizes. For more information, email JEClausen@collinsbarrow.com.

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