How To Increase Business Valuation Amid Improving Macroeconomic Conditions
The past four years have been very challenging for the business sector. Economic uncertainties due to pandemic disruptions led to mass layoffs and shutdowns. In 2022, hyperinflation and interest rate hikes disrupted business recovery. External factors further disrupted production and sales, rousing fears of another recession.
However, the macroeconomic outlook has changed in the past year as the US economy has avoided the anticipated recession. Inflation decelerated while the Fed maintained the rate hike pause. And now, we are seeing sustained recovery as total business applications continue to increase. With the expected rate cut, investor and borrower confidence may rebound and bolster economic activities.
Given this, the business sector may continue to see an uptrend in its performance. As such, it must take advantage of the stabilizing market landscape to regain momentum.
It is especially essential to small and medium businesses (SMBs), given the increasing access to customers even without having brick-and-mortar stores. In this article, we will give some business tips to capitalize on the improving macroeconomic conditions.
Track And Enhance Your Business KPIs
As a starter, sales or revenue gives you a background of the historical demand and volume produced relative to your price. It will be better if you compare it to your operating costs and expenses.
Doing so can help you determine which product or service generates the most sales or incurs the highest cost. From there, you can get each product's optimal production level and price to maximize your income.
You can compute the Operating Margin to help you determine your core operation’s profitability. The Operating Leverage ratio is also helpful since you can evaluate the efficiency of your production inputs.
You must also look into the Balance Sheet accounts, such as cash, borrowings, and inventories. If your cash level is lower than the previous time series, you may wonder if your business incurred net loss, paid borrowings, or replenished inventories and PPE. That will help you assess your capacity to sustain your business, pay borrowings, expand, and cover net losses.
Some ratios to check are the Net Debt/EBITDA Ratio, Quick or Acid-Test Ratio, and Asset Turnover Ratio.
Reinvest Your Cash
You must not solely rely on your products and services to increase your profits and cash. Some businesses, especially corporations, borrow from banks to expand or acquire businesses. Others reinvest their money and borrowings to derive more earnings. As the economy becomes more stable, the capital market may become more favorable this FY24.
The Forex market can be exciting, given its sensitivity to macroeconomic changes. Stabilizing inflation and interest rates may make predicting currency changes easier.
The secret is to find the best currency pairs. For instance, your currency pair is GBP/USD with a value of 1.26. Given the improving US economy, the value of USD may appreciate against the GBP. Hence, you can sell your currency pair to avoid losses.
The essential thing about Forex is timing since it is a highly volatile market. Being familiar with economics is a plus factor since macroeconomic indicators, such as inflation, interest rates, and Balance of Payment, can affect exchange rates. As a newbie, you must study the market first or get a forex broker affiliate to help you in your trading path.
Engage Your Employees
The Great Resignation may be over, but you still have to prevent your competitors from poaching your employees.
Offering competitive compensation packages can help motivate them. But if they are burnt out, more than money may be needed to keep them. Note that hiring and training new ones can be costlier than keeping employee turnover low.
Giving your employees soft skills training can prevent them from feeling stagnant. Having scheduled open-door meetings is also possible, especially for startups. Your employees will feel valued and heard at the same time. Giving a vibrant ambiance through interior designs, relaxation spaces, and non-work activities can engage them.
Value Your Customers
Your customers are the endpoint of your production. That is why you must communicate with them from time to time. Their perceptions are bias-free, so having surveys or quarterly business reviews (QBRs) with them can make a big difference. That way, you can find opportunities to improve the quality of your product or service, establish deep rapport with them, and earn their trust and loyalty. This can even attract more demand in the long run.
Invest in Technology
Your business must keep up with the digital revolution to meet the evolving market needs. For instance, accepting non-cash payments can simplify transactions. In 2022, 41% of Americans stopped using cash in purchases. So, accepting mobile and credit card payments can ensure customer retention.
Additionally, you can capitalize on these payment methods to your suppliers since these generate electronic invoices. You can avoid the hassle of digging into mountains of invoices on your table to track your accounts payables. You can also invest in technology to streamline workflow and implement remote or hybrid work setups.
