The Problem
We recently spent 2 hours explaining to two business partners what their business was worth and why. They were disappointed but excited to understand the value and how they would manage the business going forward.
Buying or selling a business is not easy, even for professionals who spend all their time evaluating deals. Granted, professionals have a far better understanding of the market, the supply and demand for businesses. If they specialize in a specific industry, as many do, they have an even better perspective on the market and the competitive dynamics for that sector. They understand the challenges of that line of business, including the anticipated cost of innovation required to remain competitive.
Even so, the professional must deal with challenges unique to each individual deal. Depending on the strategies employed by competing buyers, whether they’re strategic or financial buyers, the professional may be at a competitive disadvantage for the same acquisition target. In other words, buyers seldom have the same cost of capital. For any given transaction this dynamic will work in the favor of one or the other buyer. There are no guarantees as to an outcome.
For someone looking to sell their business, the challenge becomes monumentally greater. It is likely that these owners have been completely focused on their day-to-day operations, probably paying little attention to the details of merger and acquisition activity in their industry. As a result, they are not savvy sellers. They must learn as much as they can as quickly as possible to realize the most value from the sale of their company.
When we present a valuation to our clients, they are usually horrified. The value is most often nowhere near their expectations or needs. The disbelief and devastation are apparent. Why is this? Business owners do not have a full understanding of what drives business value.
Ultimately, the value of a company depends on internal and external factors to the enterprise. Clearly, internal factors are more straightforward. Most people understand that sustained revenue generation is a key driving force, along with the margins generated on that revenue, and non-cash expenses, i.e. depreciation and amortization.
External factors in play include the overall state of the economy and the attractiveness of other businesses for sale in the same industry segment. This will provide an indication as to the interest level for the business and other potential sellers. Whereas buyers may be active in a depressed economy when prices may be lower, sellers are less motivated. On the other hand, the least competitive companies may be forced to sell during a recession.
Research says that 4 million businesses will be sold over the next 5 – 10 years. If that’s even close, you know that most will be selling for well under what their value could have been…IF THEY SELL AT ALL.
When is the Best Time to Get on The Value Track?
The ideal time to begin building value is the moment you start your business. But most of us are scrambling to get going – and then get so busy with growth – that we delay focusing on building value and exit planning. We are caught up in putting out fires, it remains a lifestyle business, value suffers.
The Value Track – 7 Steps in the Process
The Value Track is a proven, 7-step process of improving profitability and building the transferable value – the real value – of your business. Embracing the Value Track approach will help you exit ownership on your own terms, create your best possible future and improve your quality of life.
Whatever stage you are at in your business’ lifecycle, this process gets you beyond all of that and onto a serious Value-Building track for your company. Click here for 3 client stories at three stages.
- Get Everyone on the Same Page
- Understand Current Business Value
- Build Your Advisory Team
- Exit-Readiness Assessment
- Build Value
- Determine Exit Structure
- Execute the Transaction
Are You on The Value Track? Learn More About the 7 Steps here: The Value Track
David Shavzin, CMC
Founder & President, The Value Track
770-329-5224
david@GetOnTheValueTrack.com
Succession Planning / Exit Planning, Building Transferable Value for Sale
Our BLOG // LinkedIn // www.GetOnTheValueTrack.com
Tags: exit plan, Exit Planning, exit strategy, transferable value, value, Value track
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