Is it worth knowing about the Value of your Business?

"How do I work out the value of my business?" - this is a question I am often asked. It is the age of old thing, and some might use that cliche, “a business is worth what someone is willing to pay for it” which is of course correct but not exactly accurate.?

An important factor to remember about the purpose of a business valuation, is that the prime aim may not to be to sell immediately but to develop a plan to reach a "liquid goal". A valuation may start by giving you a guide to help you to strategise and prepare your business to reach its optimum value which meets your personal objectives, your "why?" and goals well before to going to market – confidentially.

How do you work out the value of a business?

From an accountancy perspective, there are standard approaches to value a commercial business, which might be around a number multiple of EBITDA, (Earnings before?interest, taxes, depreciation, and amortisation) or a desired multiple of Gross Profit or even on Net Profit

These are relatively easy sums to work out yet they don’t go far enough in considering the TRUE value of a business as it ultimately only takes into consideration revenues and profits.

Many business owners find it difficult to understand that it is more than just EBITDA or any other multiple that should be factored into most valuations.

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What are the Key Elements?

Below are just a few differentiators where Business leaders, owners or shareholders could consider when discovering what the value of the business might be, whether preparing a new plan or to take the business to market immanently.

Long-term revenue and recurring income – contracted works?

Many businesses and their valuations are judged on the ability to deliver long-term revenues to the future and benefits through contractual agreements and their values. A buyer will be keen to understand what the next 3 - 5 years looks like and how well the current revenue levels are secured for the future, contractually.

In a predominantly recurring income business, it may be of benefit to?have up to date agreements in place for the valuation of the business to be maximised. We would advise anyone to work towards improving the strength of their agreements by taking the time to implement and agree new longer term agreements to significantly increase business stability and therefore market value.

?Long term revenues through customer?loyalty and relationships

In a predominantly customer confidence and relationship business world, Good Will and the building of solid relationships to allow customers the confidence to keep coming back is a key element along with knowing as much detail as you can as to why they keep coming back.

?Customer longevity and loyalty is a real opportunity for growth, increasing your ROI (return on investment) and boosting your margins. In this type of business, just a 5% increase in customer retention can bring a?25%-95% increase in profit.

When is a good time to sell?

A good time to sell is unique for each business based on their size, market share, speed of growth and, most importantly, the owners and shareholders objectives alongside their "Why?", personal goals and outcomes.

Market conditions play a key role in the timing of a valuation or a sale and the post-pandemic months were a great example of this. The pandemic prompted many owners to reconsider their objectives and goals based upon how the business has performed during the past 2 -3?years. There was a significant number of transactions across all sectors and sizes of businesses where the challenges of the pandemic was a deciding factor to sell which to many, gained positive outcomes by knowing the future contracted, recurring revenues from returning, loyal customers.

We believe that a good time to sell is based on the objectives and personal goals of the business owners and shareholders and?we are speaking from our own personal experiences. The plan should be centred on the "why?" and long-term ambitions of the shareholders and the team whilst also taking into consideration both the personal and professional elements of their own life plans for the future.

In a previous business, we planned our exit strategy with set goals and outcomes around our "Whys" and had a a clear and defined date as a set goal for the completion of the sale. This provided us with a very clear focus on the direction of the business and ensured that we were all crystal clear in our thoughts, processes, and goals towards implementing the strategy to build solid foundations to future proof the business. The result was that we sold the business 3 weeks prior to the planned goal and more than achieved our EBITDA multiple within the deal.

Exit Planning - Give me your why??

When working with a client to plan for a valuation and eventual sale of a business, my first question might be “Why?"

If you start with a "Why?" your exit strategy will have a purpose. Like anything in life and in business, having a reason "Why?" will drive your decisions and bring focus, goals and outcomes into what WILL achieve. Your "Why?" will influence the strategy and end goal now that you are focused on the detail which WILL bring your plan to fruition and beyond.

Do you know now what your value goal is? If you have a new focus on reaching your specific value but you think it isn’t quite the right time for you to go to market then working now on your business to position and fit it to your "why?" then that valuation might not be as far away as you may be thinking.

However, if the current performance of your business, in your mind, could be better and in some way this may be effecting you personally then there could be a purpose and willingness to explore your plan now for a possible exit in order to crystalise your asset at its current value while it remains as an attractive proposition.

?Your People and Culture

A huge factor in any business is the cultural fit built around people and teams who are committed to making a real difference. Committed, smart working and focused people and teams are an essential factor to the success, strength, and future of any successful business. With high quality leadership, your people will be the ones who shape your business into its brand and identity what the business really stands for and how it stands out in being unique.

Developing a strong, healthy culture where your people are happy and enjoy their roles in the success of the business is vital. The retention and continuity of your people and teams is a hugely important factor to any valuation.

Leading your people to think about and discuss what it is that they want specifically for them to grow personally and to develop their own "Why?" will inevitably grow your people as individuals and teams which will thrive and grow the business at the same time.

As leaders, identifying and implementing personal development with your teams and individuals can be a game changer. A skilled and driven team of individuals with talent who know the plan to reach their own goals and "Whys" will add drive and value to them personally and to the business.

Avoid common pitfalls

Many CEO’s, Manging Directors and Owners have not gone through the process of valuation and the potential of a return through a sale before; therefore, risk awareness is imperative.

It’s not surprising that there are many people who go through a process which can overvalue or in some cases even undervalue their business. It can be difficult to fully arrive at a genuine valuation without skill, first-hand knowledge, and experience.

This highlights the importance of engaging with an experienced, professional, and skilled adviser to guide and help to get through the process from start to finish to achieve your ultimate outcomes and knows your "Why?", an individual who has a key focus on achieving your goals and outcomes.

As a trusted advisor we will help you to understand the market, will know who is in the market and will be aware of the buyers who are serious and those who aren’t – we will know who the “tyre kickers” are. We will be acting in strict confidence whilst extensively researching and contacting potential buyers and those who are already qualified and identified in our current network who are qualified as looking to buy. Being there many times before, we know and understand the potential pitfalls and the challenges from past experiences so you don’t have to be concerned and can continue to focus on your Business goals to the ultimate outcome set by you and your "why?".

We are currently working with potential buyers and experiencing a market where those looking to invest in businesses through outright acquisition, deferred consideration or mergers are well capitalised and have the ability and appetite for investment opportunities in quality businesses across various sectors.

If you would like to know more about my experiences in building and selling my own businesses and how I work with CEO’s, business owners and Directors across all sectors and sizes of business please feel free to make contact directly with an assured guarantee of complete confidentiality.