Because a privately held business owner’s life is often so closely intertwined with the business, it is usually difficult for him/her to objectively and effectively assess the value of the business.
Knowing how much your business is worth, in a mergers and acquisitions (M&A) or business sales context, is far too important to rely on informal advice (even from well-meaning sources), of general rules of thumb, or single formulas. (see Pitfalls below)
In general, investors and buyers of businesses are primarily concerned in buying a successful business and obtaining a fair return on their total investment. Additionally, each buyer may make judgments regarding the business as it relates to market position, proprietary know-how, intellectual property, competitive strength, cash flow, working capital, quality of the assets, potential for growth and risks of any given business.
Premier’s, market value assessment encompasses a broad range of data points and is designed to give you the information you need to make an informed decision about whether to sell or hold, as it relates to your objectives. Further, this thoughtful analysis may illuminate what possible business changes may yield the largest increase in business value.
Your Premier associate will use sophisticated and reliable methods for determining a realistic business market valuation. Our in-depth process starts with gaining a full knowledge of your business, identifying the condition of the business value drivers and concludes by comparing it to current market data, comparable business sales, 3rd party financing /underwriting criteria, and market conditions.
At Premier, our associates have a thorough understanding of different valuation methods, how they may affect the value drivers and which method or methods are best suited to a particular engagement. The first step in the market value assessment of the business is to identify its value drivers.
Value drivers
Value drivers are the real and perceived aspects of a company that enhance the company’s value from the buyer’s perspective. Typical value drivers may include:
- Cash flow, profitability and strength of balance sheet
- Customer types & relationships
- Industry growth trends for key products and services
- Quality and reputation of the business
- Strength of distribution and sales channels
- Intellectual property, such as patents, trademarks and brand name
- Quality of management team or key employees
- Strength of internal systems processes
- Possible synergies expected from a merger/acquisition by an industry or synergistic buyer
- Barriers to entry or ease of re-creating the business
At Premier, we will uncover these value drivers and bring them to light. Once value drivers are identified, an assessment of the strength of the value drivers can be determined and actions to correct or enhance them can be taken if necessary. Further, your Premier associate will be able to help you determine which value drivers if improved, can deliver the most return in the way of business value.
Some examples for adjustments/ improvements to the value drivers after a careful market analysis could be:
- The business may need to further diversify its’ customer base
- The balance sheet and cash flow may need to be improved, perhaps through cost cutting, price adjustments or debt restructuring.
- Financial books and records may need to be updated.
- A manager or management team may need to be put in place.
- Undocumented processes may need to be codified.
- Systems may need to be installed / upgraded to support growth.
To create the Business Market Valuation report, your team at Premier will meet with you to fully understand the following:
- Your personal objectives in considering the sale of your business.
- The strength of your businesses’ value drivers.
- Share the process and methodology employed to create the Business Market Valuation report.
- Review the deliverables of the Business Market Valuation report.
- Request information and documentation needed to prepare the report.
Pitfalls of not having an experienced M & A professional value your business
Premier will always recommend you consult with trusted and experienced third party advisors to fully understand your particular implications with the sale of your business.
The dangers of not having a professional value your business are; If you undervalue your business, you leave hard-earned money on the table. If you overprice it, you will needlessly delay or even prevent the sale of your business (see
7 Deadly Mistakes), your emotional ties to the business may prevent you from objectively assessing the business from a
buyer’s perspective leading to unrealistic expectations, and perhaps most importantly, is having a thorough understanding of the current conditions of the business sale market. Even if valuation rules of thumb and general formulas apply to your business, they do not take into account the realities of the current market. Market factors that affect business sales are varied and change over time. They can include availability of acquisition financing, ratio of buyers to sellers, 3rd party lender underwriting requirements, and the number of similar businesses on the market.
An experienced Premier intermediary will take into account the changing market conditions in the preparation of your Business Market Valuation. In the end, our determination of actual market value may be greater than your expectations .… or it may be less. Either way, you can be confident that the deliverable we provide to you will be based on facts and research which accurately reflect your company’s market value in a variety of sale scenarios.
Premier Sales offers complimentary baseline business market valuations that provide business owners immediate benefit and have been utilized to enhance the value of their business. Call our office at (480) 905-9030 or click
Business Analysis and Valuation to obtain your thoughtful analysis.
