How do you increase the value of your business?
It’s really simple.
Like anything anyone wants to sell, to maximize the value you need to stage it.
So with a business, you first need to understand value is subjective. At any given time, there are a number of “values'' that are accurate, yet different, depending upon who is ascribing the value and for what purpose.
For example, there is Owner Value World. Then there is Buyer Value World. These are seldom close! A quick calculation of Earnings times some “Multiple” (where the “Multiple” reflects the risk the Earnings are sustainable and “growing”) is the base for valuation. You can add real estate, maybe inventory, patents, or other tangible assets, but Earnings times a Multiple is the base for valuation.
An Owner has utmost confidence their “Earnings” will continue as in prior years. A Buyer does not. They perceive potential risks due to you, departing, maybe key employees leaving, long time customers with a relationship to the owner not continuing to maintain the working relationship, and so forth. All of those “risks” are reflecting in a lower Multiple, which in turn, creates a vastly different Valuation Picture…
So it is little wonder most Family Owned Businesses that do not recognize these issues, sell for 30, 40 even 50% or more LESS than their intrinsic value. It just is the way it is. Unless you do something about it.
So let’s be clear: It’s not a “fault” issue. In fact, it often is not even about a “Quality” issue. You built a business for “Lifestyle”, not to “Sell”. And those objectives are a world apart.
If you run a $50 or $100 Million (or more!) business, you would have a CFO, a Treasurer, a Marketing Manager, with a Sales manager executing specific strategies proven to work. You would also have a CTO who ran the technology areas… and so forth. But your business does not have the scale to afford such depth on “C Suite management”. It’s primarily you, and your seasoned team. And so a Buyer sees all kinds of “potential” risks and they simply are not going to pay “full” price and bear that risk. They will bid down so as to absorb the unknowns.
This is why Private Equity groups buy companies like yours, aggregate them under one roof, and create economies of scale.
That leads to more sustainable predictable Earnings, and a higher Multiple when they bring this bundled NEWCo to market, selling upstream to a bigger fish. As an example, for $5 to $7 Million businesses, aggregated, become a $40 Million enterprise, where a still larger Private Equity firm would look to acquire this NEWCo, and so on. What matters here is the intrinsic value of your business will not be realized by you. Some PE firms will realize it… if you do not take action, now!
Your job, as you look to sell, is to see your business the way a buyer sees it. Understand your perceived vulnerabilities to a sustainable earning and growth rate. And address it before going to market.
Do that, and you will add 30, 40, even 50% to what a Buyer would be willing to pay you, today, for your fine business. It really is that simple.
Let’s say your “Adjusted Earnings” is $1.5 - $2 Million. A Multiple may be in the high 3’s to low 4 range. So maybe to a Buyer, your business is worth something like $5 - $7 Million. How important would it be to you to not settle for something in that range, but in fact have a Multiple in the 5 - 6 range, on Adjusted Earnings of $2Million, and get offers approaching $12Million? I bet it would matter to you, as well as to your family.
So what do you do, now, in solving this problem?
It starts by taking the Survey. Understand what a multiple is, what comprises a Multiple, how you score on the individual components of a Multiple, and where you could/should score based upon your specific business situation.
Not only do you see your business in the eyes of a Buyer, but you see where you need to stand if you want to command an industry-appropriate full-value Multiple.
The 7 Pillars of Value Creation™ works alongside our Exit Valuation Survey. From the survey algorithms, we see your business' Multiple, and your score in each of the 7 components. This is what to expect a Buyer will see after performing their own due diligence, and how they will value your business (you still need to have your EBITDA determined, which we can help you with).
What We Do
The marketplace is in trouble. Your retirement is in trouble. You're now ready to sell your business but your business is not ready to be sold.
Our mission is to unlock the hundred billion dollars that are trapped inside America's family-owned businesses. Most family-owned businesses sell for 30-40% below their actual worth because owners don't know how to access the value - but we have the solution.
There are 7 Pillars of Value Creation within your business. We can help you improve them all.
SELLING A BUSINESS
Selling your life's work can be stressful. We help you prepare for a successful sale at your business' true value.
KEY TO SALE
The only way to sell your business is to change from a business built for lifestyle, to a business built for sale
Whether you are selling your family business, or transferring to a family member, we help you with a successful transition.
Learn your business' true value, not what you think it's worth. It's the first step from where you are now to where you need to be.
Our experts can provide you M&A advice with a difference. We put you first, instead of trying to get the biggest fee.
*The Lower Middle Market is comprised of businesses worth $5-$30 million, typically having EBITDA of $1 million - $4 million.
The 7 Pillars of Value Creation is our name for our work as Business brokerage services and related consulting pertaining to business sales, mergers, acquisitions and business valuation. Exit The Family Business the downloadable guide and any accompanying assets or affiliates are provided for informational and educational purposes only. It is not intended to provide tax, accounting or legal advice, nor is it an offer or solicitation to buy or sell, an endorsement or sponsorship of any company, security or fund. Certain owners, officers or affiliates may be associated with investment firms and may make referrals from time to time for such services, but this does not constitute investment advice, nor should it be construed as Exit The Family Business being in that business. We always suggest you seek professional advice. Past results are not a guarantee of future results.