Most business owners develop and operate their business to satisfy financial goals, and hopefully provide them with long term financial security.  So, let’s say that you are a business owner who has built a successful company.  Your business has served you well by providing a very nice income stream over the years.  But most of us have learned by experience that things can change over time, and a business model that once seemed to be a “rocket ship” can begin to show signs of change on the horizon.  Astute entrepreneurs turned business leaders keep an eye on both the top and bottom lines of the company, and you are no exception.    As a result, you may have begun to think about the future and your business value.  

What can I do to further improve my business value?

This is where common sense comes into play.  Ask yourself, “if I was looking to purchase this business, what would I be hoping to find”?  Sometimes we can be “too close to the forest to see the trees”.  As business owners we can become complacent, willing to accept things the way they are rather than go through what’s involved with making a change for the better.  It’s human nature.    Often it makes sense to get away to a quiet place with a notepad and pen and spend a little quality time looking at the business from more of a detached point of view.  Consider the business financial performance, the risks, and the profit percentage as compared to other businesses like yours.  Then ask yourself what kind of changes can be made without upsetting the apple cart, that result in positive improvements. 

So, what are the basic strengths and weaknesses present, in your business?  How can you change the model to better capitalize on strengths and reduce some downside risks associated with inherent business weaknesses.  Are you over staffed?  How do your prices compare to the competition?  Are your costs in line with industry norms – resulting in good margins and profit? Is the business growing or simply “going along as usual”?  What investment can you make in the short term that will pay off for you 18 months in the future?  These and other questions are helpful as you begin to drill down, considering many of the same concerns that a prospective buyer would have.  A logical next step in this process is to build upon your ideas for improvement, creating an updated Business Plan or road map for improving your company performance.  

So, what is my business worth?

Once you begin to consider making changes that can affect your business bottom line, it might make good sense to have the company appraised.  If you decide to speak with a valuation professional, be sure and contact someone who is reputable and certified to do business valuations. Typically, there is distinction in the type of valuation that makes sense (based upon business size – the dividing line generally considered to be roughly $3,000,000 in enterprise value).   The size of the enterprise often determines the process used to arrive at a value.  

Formal Business Valuations require special training, take time to prepare, and are based upon EBITDA (Earnings Before Taxes Interest Depreciation and Amortization). Smaller Mom and Pop or main street businesses often rely upon a Broker’s Opinion of Value which is based upon SDE (Sellers Discretionary Earnings).  It may be wise to have a valuation or broker’s opinion completed, to serve as a benchmark to measure your success in improving the company’s value going forward.  In fact, why not plan to keep the Business Valuation along with the updated Business Plan, using both to gauge your success in improving the company performance and resulting value, 18 months out?  

Who should I contact to discuss a business valuation?

There are literally thousands of fully accredited and/or certified professional valuators out there whose primary focus is valuing companies.  I have found that it makes sense to have your valuation completed by a reputable and credentialed business valuator.  Two such accreditations include the ABV (Accredited in Business Valuation) from the American Institute of Certified Public Accounts and CVA (Certified Valuation Analyst) from the National Association of Certified Valuation Analysts.  Again, generally the business valuations produced by these valuators tend to be mostly based upon EBITA, and follow the rules and norms developed by the profession over time.  

If your business is smaller, you will likely still want to establish a value, possibly by working with your CPA or a qualified Business Broker who is well-versed valuing businesses using established SDE Modeling.  The California Association of Business Brokers offers courses and training for business brokers who use SDE as a basis to generate a Broker’s Opinion of Value.

Remember to keep your business valuation confidential.

As with most self-employed business owners, your business is probably an important component of your financial portfolio. In the future, if you decide to sell the company it is expected that most buyers will want to complete their own valuation of your business.  Even so, having one in hand from the start can be a good first step in supporting your value expectation before you begin the marketing process.  Most importantly, remember that your business valuation is confidential and yours alone. Remember to keep it in a safe place for your own reference, and don’t share it with employees or potential buyers.  In our experience, sellers who are willing to share their price expectations with potential buyers up front – do so to their own detriment when it comes to a negotiation process down the road.

Ready to start a conversation about your business?  You can reach Todd Warner at (559) 294-8000 or email at tw@AgribusinessBrokers.com., or find additional info at https://agribusinessbrokers.com/ Todd Warner is an entrepreneur and experienced owner/ operator of both manufacturing and service businesses.  He owns and operates Agribusiness Brokers, a Clovis, California based Mergers & Acquisitions Advisory representing Agribusiness and Industrial companies. As an M&A Advisor he has represented Middle-market business owners in successful M&A engagements, in New York, Illinois, Minnesota, California and Hawaii.  Mr. Warner holds various certifications including CVA, CM&AA, and CMAP and is a licensed Real Estate Broker in California (DRE 01737715) and FloridaAdditionally, he is a FINRA Registered Representative: Series 7 (General Securities Representative), Series 63 (Uniform Securities Agent State Law), Series 79 (Investment Banking Representative) and the Series 82 (Private Securities Offering) as a representative of StillPoint Capital, LLC, Member FINRA and SIPC, Tampa, FL.