30 Jul Maximizing Your Business Valuation
We all know the expression “beauty is in the eye of the beholder”. You might believe you have the best business, with the best model, the best customers, and the best employees, but that doesn’t mean others will agree. Or more importantly want to pay for it.
Imagine a young man asking his girlfriend’s father for his blessing to marry his daughter. Now, the following is unlikely, but let’s go with it. He arrives wearing a tuxedo, clean-shaven and perfectly groomed, with a ring he knows she will love. He tells him that he has a great job and shows him his diploma from an Ivy League school. He gives him character references from many of his friends, prior colleagues and old teachers and a copy of his credit report. Lastly, he shows him pictures of his own family over the years that include family reunions, vacations and holiday parties. He’s selling a great picture, right?
My point here is that a prospective buyer may not see through your rose-tinted glasses, but if you present the information precisely and include support, it becomes an easier sell. Of course, the process of determining and then presenting a company’s worth is a bit more complex.
The CFO Suite can help you get through this time when you might need that additional capability or capacity for your team.
Obtain A Professional Business Valuation
Performing a business valuation provides insight into the value of the company. It’s crucial that before even considering putting your business up for sale, you reach out for a professional business valuation. While you may feel you have a good grasp on your company’s value, this removes any doubt of potentially under-valuing (or over-valuing) your business.
Strong Accounting Processes & Presentation Are Key
Did you know that one of the top reasons companies do not sell or are disappointed in the final valuation is “inadequate financial reporting and lack of consistent attention to appropriate financial metrics”? Having strong accounting processes and financial reporting in place will allow you to present information clearly, concisely, and without dispute. You will absolutely improve the chances of your valuation being taken seriously.
In selling a business and maximizing the valuation, a good solid written and oral presentation is essential. The presentation needs to include written narrative descriptions, financial statements recast for selling purposes, answers for potential objections, and a clear reason as to why you are selling.
Short-Term Goals vs Long-Term Goals
Many will say that the most important thing you can do to maximize your business valuation is to look beyond the past or even future short-term goals. Instead, project a scenario that provides clear opportunities and expectations for future performance, detailing long-term goals. Buyers want to know what challenges exist and what opportunities can be exploited going forward. Producing a best- and worst-case scenario of how the business could perform provides a level of comfort the business will continue to perform at or above that level.
Preparing Your Business for a Sale
Buyer valuations will be influenced by a myriad of factors including the strength of the current buyer’s market, the appeal of your industry, its recent and historical financials, the value of its intangibles and more. Each buyer will place a different value on each factor and because you’re trying to appeal to as many buyers as possible (to maximize the price), it’s essential to carefully consider each one.
We have only touched on a few aspects of maximizing the value of your business, but there are many. For example, when preparing your business for sale look to:
- Resolve problems / legal issues
- Clean up accounts receivable and collect or write off old balances
- Prepare financial statements
- Develop short term and long-term business plans
- Secure relationships with key stake holders, employees, vendors and customers
- Sell old inventory
- Ensure office equipment is in good order
The key concept is understanding the company’s value drivers, then figure out where you want to start. Identify the drivers, evaluate their strengths and develop a plan; this will lead to sustained long-term profitability and result in a competitive advantage.
Here’s how we can help:
- Identify, understand, and prepare the wide range of due diligence documents
- Identify and evaluate gaps that exist that will negatively impact your business valuation
- Conduct a process optimization review
- Evaluate and improve financial processes that will accurately and efficiently prepare financials
- Determine whether existing staff have the experience and bandwidth for future needs and if not, develop a staffing plan and execute the direct-hire strategy.
The CFO Suite is your trusted resource for interim, project and direct-hire game changers that maximize the capabilities and capacity of your accounting and finance department.
Through our consultative approach, founded upon years of practical experience in public accounting, industry and professional services, we are a unique firm dedicated to finding game changers to just get it done! We know what it takes to build the right team to support your organization through challenges and change.
Visit our website or call us today!
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