Investment is a risky business at the best of times, but in a recession it can become a game of roulette unless you know what you are looking for.

So how, at a time when uncertainty is the only thing we can be certain of, do agency owners and managers demonstrate they are worthy of investment, or investors divine whether the business they have in their sights is a good long term bet?

Does a CSR policy matter? Is winning awards important? Does creativity contribute to the bottom line? Will great press coverage increase value? How crucial are client relations?

Here at Results International, we have grouped together considerations such as these, identifying them as ‘premium factors’ or crucial strengths, and ‘discount factors’ or weaknesses, around four key areas – finance, offer/positioning, clients and talent management.

Viability matrix

Using this matrix, investors can better understand a company’s viability – its most important value in today’s market – while agency owners can use it to check their health and identify strategies to make themselves more appealing to investors.

So a company that we would regard as financially sound would possess a number of seemingly obvious ‘premium factors’ such as consistently high profitability and growth, no net debt, and an acceptable ratio of cost of staff as a percentage of income.

Financial discount factors would again include the obvious such as poor or patchy profitability or historical performance but we would also count factors such as a lack of high margin IP or lock-in products as a real weakness in an agency’s portfolio. Similarly a lack of convincing and ambitious business goals should be considered a sign that a business is not engineered to last.

The agency’s business offer and positioning is another key area of focus when defining its value.

In a recession particularly, vibrancy and innovation is vital and characteristics such as being in a ‘hot sector’, or having a high profile brand would indicate a company with a good offer and a rosy future. Other premium factors include having a clear, differentiated positioning and a good reputation, and this is why awards and favourable press are important.

Standing up to scrutiny

Businesses that are not clear about what it is they offer are unable to stand up to scrutiny and fail to stand out – they could be easily swallowed up in the din of recession. Other positioning discount factors include having highly active competitors, being in an undesirable sector and having a lack of thought leadership within the sector.

The client factor is a difficult one to control, particularly in a recession, when sudden losses and budget cuts are the order of the day. Businesses that have a wide spread of well established loyal customers are more able to absorb a few nasty shocks.

Among the premium factors which would indicate a company with resilience include not being overly dependent on one single client – but perhaps less obviously would also focus on the types and strengths of client relationships; for example, are the client relationships embedded at a board level?

Strong senior relationships should be nurtured and cemented in order that clients feel personally connected with a business, particularly important during a recession when the price of service starts to become a serious consideration for clients. At Results International, we would consider low level client relationships a discount factor, along with a lack of retained clients and over reliance on any one sector.

Differentiation through talent

A recession is a time for difficult decisions – one being which people to keep. Talent is a vital factor in differentiating businesses and should be retained and nurtured. Strategic HR is crucial and a strong business would have an established and experienced senior team with senior talent locked in. A creative culture aligned to business goals would also be a plus and we would want to see performance incentives linked to accountability and strategic business goals.

It is often said people are a company’s most important asset, yet too many companies fail to act on this basic truth and end up vulnerable and therefore make themselves unappealing to investors. Factors such as an unaligned leadership team, unequal levels of senior contribution or over reliance on one or two key people we would consider discount factors.

We believe that valuing companies in terms of these ‘premium’ and ‘discount’ factors, some of which we have given above, offers clients clear insight into how well a company is likely to be able to perform over the next few years and will prove an invaluable analytical tool for investors and business owners alike.