Posts tagged with: value drivers
Valuation is important at every stage of your business lifecycle. Owners assume it’s implicit in their revenue goals, growth goals, hiring and expanding. Instead, a formal tangible valuation is essential all along the way to keep your company on course. These five reasons are tied to the lifecycle of every business.
Ideally, if you follow Stephen Covey’s advice to ‘begin with the end in mind,’ you will perform your first valuation before you open your doors. This will give you a baseline for everything else you do. It also starts the habit of focusing on value, not just revenues.
As you grow your business, periodic valuations are a measure of how the market would value every area of your business. A valuation report will help direct you to focus on certain value drivers to achieve your objectives.
Consistent periodic valuations will help you measure your position in the market, your competition, as well as timing the best opportunity for your sale or exit. Basing your exit timing on objective third party reporting will guide you to make strategic decisions that give you more leverage in negotiations before you get to a transaction.
If your business is in decline for any reason and you have been conducting periodic valuations along the way, you will see the symptoms of that decline earlier, be in a position to respond and correct the situation to mitigate risk and damage.
The valuation process owners are familiar with is the one initiated by the intended buyer or acquirer. This valuation on its own, late in the game, is a wildcard – you don’t know what their business appraiser will discover, focus on or be concerned by. Any questions or concerns they find will (intentionally) discount the offer price or possibly derail the whole thing. But if you have a history of three or more periodic valuations:
- You won’t be surprised by anything they find, anything they ask for
- You will be better prepared for the process
- You will have uncovered and resolved every concern they could raise, beforehand.
- You will have your documents complete, up to date, accessible, in a format they seek
- You will fare much better through the process because you are prepared to be so forthcoming
- You will be in a position to support and defend the value you expect to command in the marketplace.
There are many different ways a business appraiser can value your business. In addition, a wide range of objectives also affect how the calculations are done. Be sure your periodic valuations are consistent in formula and objectives.
I don’t perform valuations, but I do help you build, track and measure the value drivers that will enhance your market valuation. Call 508.820.3322 or email us to discuss your unique situation.
If You Desire to Ever Sell, Scale or
Pass on Your Business for $10M+
You Can’t Afford to Wait.
You Need This Roadmap Now
November 6, 2014
This Way Out Group is offering a full-day interactive and practical session on building value in your business and a timeline of available exit options and strategies.
This 8 Figure Valuation Roadmap with Kerri Salls offers you a confidential personal assessment of your business’ value drivers relative to other companies. In addition, this one-day transformation immersion will give you insight, perspective, tools and a roadmap to:
- accelerate growth and
- maximize the value of your business now.
A limited number of Scholarship Discount Tickets are available until September 21.
See the Registration page for details.
VIP Master Pass Tickets offer extensive services and assets before, during and after the event.
Check out the Registration page now for details.
- Starting, growing, adding value and exit planning are an integrated continuum – all are essential to maximize value and monetize your business.
- You can better position your business for amazing growth and increasing value if you start with a plan
- An action plan that adds value to your business immediately and prepares you and your business to attract the highest valuation opportunities
- The roadmap to drive the process to a transaction to guarantee your transition to reinvention
- Identifying, communicating and testing your reinvention plans. Ensuring that your next venture, adventure, avocation or opportunity is even more engaging, compelling and fun than the business you let go
Along the way, we’ll address:
- Hard skills to maximize value and wealth
- Soft skills and expertise to monetize every asset
- Your Next Steps
The 8 Figure Valuation Roadmap is a fit if you are the Owner/CEO/President/Founder of businesses with current revenues up to $30M.
Whether you plan to monetize your business in the next 3-5 years or not for another 3 decades, this program is essential, now. Even if you only have an inkling of what that future looks like, you need this immersion training now.
This program is not suitable for experts, advisors or other company officers.
Seating is limited. Register early for Thursday, November 6, 2014.
Why This Seminar?
To guarantee you can cash out of your business
to cash in on that life beyond your business,
because of the value you can prove is in your business.
Most business owners and entrepreneurs work hard every day to grow their business. But are you focusing on growing the right things to make your business more valuable and sellable to your ideal buyer?
Do you know what buyers are looking for? Do you know what value drivers in your business, your ideal buyer will be looking for? Here are 5 areas where you can add business value just by what you focus on.
What makes you unique in your market? What do you do that your competitors don’t do or can’t do?
When your product or business model is hard for someone else to clone or copy, or you have built an enviable client-base, a buyer will pay a premium for what you have in place because it would cost them more in dollars, time and risk to reinvent your business.
Systems and Value
When a buyer closes the deal and buys your business, how easy will it be for him/her to step in and keep operations running smoothly?
Every system and process you document to run the business without you, can be monetized to add to your business value at the sale. Demonstrating that the business can run well with your team, your systems, and your procedures validates your position and gives you more leverage in negotiations. When you sell, can the business run consistently without your day-to-day oversight? Do you have contingency plans in place so that your team is prepared and can handle all key issues that may come up from time to time? Is your customer loyalty to the company and the brand or are they only tied to you and your personal relationship with them? Wean your clients off your personal relationship to demonstrated added value in the business.
You know the phrase, ‘you only get one chance to make a good first impression’. When it comes to buyers considering acquiring your business, that curb appeal typically starts with your financials. Before a buyer will pursue the deal any further, they will want to review your financial statements and forecasts thoroughly. They are looking for clean up to date books. Beyond those basics, they are looking for a track record of growing both revenues and profits. Anything less gives them an argument to reduce the valuation of your business. Do whatever it takes to clean up the books, keep them current and strong and demonstrate growing business value in both revenues and profits.
Look at your customer base. What is the distribution of revenues among clients? Are your sales distributed across a wide base or concentrated in a small number of preferred clients? Is your client database current or out of date with lots of former clients still listed? A business appraiser will recognize and monetize a good, strong, clean database as an intangible asset to be valued in the sale price.
Acquirers will review and analyze your customer database to determine how stable sales are, the lifetime value of each client, the lifecycle of each client, and to determine their retention rate after the acquisition.
Future Growth Potential
A buyer’s due diligence is quite invasive – especially in a privately held business where this level of detail and these documents have been held close for years or even decades. Buyers are simply identifying the risks they’ll incur for the price they are willing to pay. Buyers want good odds that they’ll not only breakeven after the sale but indeed sustain growth to increase their returns from future growth. Always be prepared to demonstrate a track record of achieving milestones and how you consistently hit your projections, to build confidence in future growth potential.
If you prepare your business all along the way to be buyer ready and buyer attractive, you will know the range of business value that it is worth in the market and that you would consider, before any buyer or acquirer comes knocking. When you are always building business value to make it saleable, you gain more leverage and can command a premium price.
If you would like to establish value drivers in every area of your business to grow your business value, check out this one year program.
Ideally, exit planning occurs before action in every area.
Too often business owners/CEOs assume that because they want to exit the business soon, that they just have to act to make it happen. In fact, they are often surprised by how extensive the planning is that they must work through before they can get out and transition to reinvention.
Exit planning must include each parameter on this list.
Exit Objectives – Before you proceed, you must identify your exit objectives for the business and for your life beyond the exit.
Value Drivers – You must identify your value drivers, the value drivers that will make the business buyer attractive and the value drivers that secure the future growth of the business and protect your employees.
Transfer Control/Ownership/Management – Control, ownership and management are not the same thing. So planning how to transfer these different skill sets to successors is essential. You need to break them into distinct skill sets before you decide who you will train to succeed you in each area.
Contingency Planning – When things are running smoothly, owners think contingency planning is irrelevant. But if illness or an accident incapacitates you, your valuation will plummet unless you have a contingency plan/continuity plan established, documented and ready to activate.
Wealth Management/Preservation – You have to decide how much of the illiquid wealth of your business you want to leave in the business, to maximize valuation and secure future company success vs. how much do you need to liquidate to achieve your exit criteria and the financial freedom to pursue your reinvention.
Successful Exit – Defining and planning what a successful exit means to you is important. There is no vanilla answer. It’s unique to you, your family, your goals, your business, the lifestyle of your dreams. If you can’t describe it, you will never know when the package on the table meets your needs.
Exit Options – The earlier you start exit planning, the more options you have, the wider range of exit vehicles, wealth vehicles and reinvention options you can have.