It’s finally time to get out.
You’ve nurtured this small business and been there through the growing pains. Got through the disasters and pulled it out. Found great employees and lost them. Then found more.
But now, it’s time to talk transition. It’s time for the business to be sold.
How do you know what your business is worth? How do you value a business?
In the business world, the rearview mirror is always clearer than the windshield.
There are plenty of issues to understand in the sale of a business. To start, let’s talk about the 6 core valuation drivers that constitute the value of your business.
Strategic Value speaks to your industry. Barriers to entry, regulatory requirements, economic impacts, and technological changes within your operating environment are all part of Strategic Value.
To be strong in this area means that your company leads the industry, has great brand awareness and is handling technological change well.
If your company struggles with day-to-day industry undercurrents, you probably need to strengthen this area to get the best price.
Organizational Value includes your small business company culture and the internal communication systems and processes. The internal structure of a company is the main defense in preventing fraud, accidents, and lawsuits.
Companies with strong Organizational Value have employees that know what their job is and do it well. Policies and processes are documented so that products and services are delivered consistently.
If your organization has difficulty getting employees to perform consistently or your policies and processes are not documented clearly, it’s time to work on this value driver, increasing your company’s worth.
Your company is only as strong as the employees. Employee Value talks to the strength of your staff, especially the management team.
A management team that has strong and lengthy industry experience is preferred by potential investors.
But it’s important that no one person is indispensable. In a small to medium-sized business, having one or two individuals responsible for the majority of revenue generation is a risk.
If growing more talent from the inside is a challenge for your company, then it’s time to put together a plan to remedy the situation. The value of your business depends on it.
Customer Value is the health of your customer base.
A small business with a loyal and growing customer base is worth much more than a company that struggles to get and keep customers.
Customer retention and diversification is very important to a company’s consistent growth and performance. The health of your business is determined by repeat customers and customer satisfaction.
Valuing a business places a great deal of emphasis on Customer Value.
A satisfied customer is the best business strategy of all.
Financial value measures the revenue growth and profitability of a company as well as the controls and systems in place to manage the business.
Companies with high financial value have high-quality financial systems in place as well as periodic reporting to help make those strategic and operational decisions. Operational efficiencies are also a significant factor in Financial Value.
As an owner, do you know your company’s EBITDA? Are you measuring your cash flow generation ability? If not, it’s time to get those controls and reports in place to increase the value of your business.
Environmental, Social, and Governance or ESG is a critical component of your company value. This value promotes the next wave of sustainable, global competitiveness through social responsibility and environmental awareness.
Social responsibility fosters a better reputation and brand awareness as well as higher employee engagement. Companies with independent directors and a separation of senior roles within the organization score higher for ESG.
If your company doesn’t have a reputation for social responsibility or environmental awareness, your business value is not as high as you think.
Most companies are not equally strong in all six areas. If you’re interested in how your company scores in each of these areas, Management Insights is perfect for you.
Visit our business valuation software features pages for more information and to complete your valuation today.
Want to know more about business valuations? Check out this whitepaper: Preparing for Valuation.
If you’re not quite ready to use an online tool to help you with a business valuation, the professionals at Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify areas to focus on as you progress along your exit plan.
Schedule your free 30-minute consultation here.
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