Gone are the days where a business valuation was only done when contemplating a sale. The process of determining the value of your business is a good practice in a market where efficiency is key. Understanding the weaknesses and potential opportunities for your business is of tremendous value, so why wait until you want to sell your business to gain this insight?
Formal business valuation is an excellent tool for businesses that can afford the time and expense that is required. However, resources for quick, easy and cost effective estimates are also available. We are currently offering our clients access to an Online Business Valuation tool provided by ValuSource, a locally-based national company with over 25 years of experience.
Here are a few examples of how even a high-level business valuation can make your business more efficient and more profitable, long before you ever think of selling it.
- Find opportunities for improvement in your operations by comparing key financial benchmarks (e.g., sales, distributed earnings) with companies in your industry that have been sold. One of the key tools for strategic planning is benchmarking – measuring the performance of one company against another high-performing company. The challenge for businesses, especially for small businesses, is finding the data to use as a benchmark. When you obtain an estimate of value from Online Business Valuation, one of the resources involved is a database of over 30,000 businesses that have been sold, including numerous details about their operations. By comparing such performance metrics as sales, revenue, and discretionary earnings to those of companies in your industry, you can see how those metrics impact the price for which that company sold. How do the sales, discretionary earnings or other metrics of your company compare to other companies that sold in the price range you want to reach for your company?
- Find an opportunity for growth through leveraging debt with a review of the debt capacity of your company. For many small businesses, the primary concern of the owner is in generating revenue and profit. Most of the owner’s attention is ‘in the business’, focused on generating more production, more sales. Too often, debt is considered a bad thing, often a hold-over from managing personal finances. However, financial experts will tell you that sustainable debt is a means of growing a company and increasing its value. For example, borrowed funds can be used to purchase fixed assets, requiring less capital for increased operations. The challenge for owners is to stay within the debt capacity of their company. When you obtain an estimate of value for your business with Online Business Valuation, the evaluation includes estimating the debt capacity of your business with a standard financial model, based on the level of discretionary cash, number of years financed and interest rate.
- Find ways to make your company more attractive to potential buyers and/or investors by exploring how your company measures up in key factors for investors. Small business owners love their businesses and typically asking prices reflect that love and all of the time, money and hard work that went into building the business. However, potential buyers or investors don’t really care about any of those things. Whether you are preparing your company for sale or trying to increase the value and productivity of your company, knowing what investors look for can provide actionable intelligence to improve operations and increase value. When you obtain an estimate of value for your company with Online Business Valuation, your report will include metrics of interest to buyers, including post-sale cash flow, asset value, price/sales ratio, and so on.
So, regardless of your appetite to sell your business, you can see the importance of understanding your firm’s value and the elements that contribute or take away from this value. It’s a starting point leading to better, stronger, more profitable business practices.
To obtain an Online Business Valuation, click here.