What is your business worth? How do you, value your business? If someone came into your office with a cheque to buy your business, what would be the number on it?
Q: What is the value of your business?
A: Only what someone is willing to pay for it. So how do you figure out what someone is willing to pay?
Sell all your assets, pay off all your debts, see what is left over, and that is the lowest value for your company. On the other hand, we all dream of the Unicorn purchaser who is willing to pay obscene multiples to come walking through that door. Rare as a Unicorn purchasers are; they still do exist. The value of your company lies between these two points; where they lie, depends on your company’s risk profile. Risk profile? Yes – ultimately, it is about how you run your company. A poorly positioned company is high risk, a well-positioned company is a low risk; and yes, there are things you can do to change that.
There are four things that impact the value you can get for your company. Things that happen in the economy, things that happen in the stock market, things that happen in your specific industry, and things that happen in your company. You may not be able to do much about the first two, maybe something you can do to influence the third, but lots of opportunity to influence the fourth element in your favour. It is that fourth element than can drive those obscene multiples you sometimes hear and often dream about. So, what can you do to improve value? First, by understanding how someone buys value.
When someone buys your company, they are not buying your past. You have already invested your past earnings into your sailboat, so this is of no value to an acquirer. Buyers are interested in the future. The acquirer probably has a bigger sailboat and a vacation property they want to keep well maintained, so to them it is all about the future, and since the future has not happened yet, this means, “buying into ‘risk’.” Your job is to reduce the risk of your business, not in your eyes, but in the eyes of an acquirer.
Some key strategies that have born some statistical relevance to reducing risk and improving value include:
Well, after analyzing more than 20,000 businesses, it has been determined that companies with a Value Builder Score of 80 or more receive offers that are 71% higher than the average business. Want to know how you fare?
RK Fischer & Associates