When is the right time to assess the value of your business? The answer, of course, is that owners and CEOs should always have an understanding of the value of their business. Perhaps the better question is, “What are the triggers that signal a time for a focused review, and resulting greater understanding, of business value?”
Business value enhancement is the daily job of the CEO – and that responsibility covers a wide landscape. The CEO is interested in customer satisfaction, operational efficiency, risk management, and strengthening the team culture, among many other daily responsibilities. Often, other executives share these responsibilities, which become part of the ongoing process of pursuing business success.
Apart from the day-to-day responsibilities of focusing on business value drivers, there are times when a holistic view is more valuable to knowing that you are on track. This involves lifting the team’s attention above the horizon so that they can consider their current path.
All would agree that preparation for sale is a good time to focus on understanding business value. Professional valuations are routinely performed for purchase and sale transactions. Similarly, if a business is granting equity-based compensation, advisors recommend professional valuations to support management and board decisions. However, waiting until a sale transaction to subject your business to a professional valuation, which has uncertain results, is much like selling your house subject to the results of a home inspection when you have not thoroughly inspected the home yourself. Scary at best.
Other events in your business’s life should also trigger an analysis of the business’s basic health factors, which are the building blocks of value. Our CoreValue tool refers to these health factors as Value Drivers. CoreValue helps business owners analyze the health of each driver before, during, or after significant business changes occur, so that they can better navigate those changes.
In one situation, for example, a business’ CEO role passed suddenly from founder to daughter. Even though the daughter had been involved in the business, she had not been in the position of managing the day-to-day operations of the business – much less in determining the overall business direction. Had this transition been planned, the founder could have examined the Value Drivers with his daughter, and the executive team, in advance and facilitated a smooth hand-off. As it was, this situation triggered a need to take stock of the Value Drivers. Through evaluating the business’ strengths, weaknesses, and areas of potential growth, the new CEO was able to initiate a smooth transition and pursue a productive new business direction.
In another situation, the prospective buyers were conducting due diligence on a target business. Though questions were being asked and answers were being documented, things were not adding up to support the multiple of earnings that the seller wanted. The buyer then turned to the CoreValue tool, which helped them focus quickly and objectively on the factors that contributed to a lower value. This helped guide the discussion with the seller, and ultimately resulted in a better-negotiated outcome.
These are just two situations that demonstrate how CoreValue can help business leaders and investors understand the value of an ever-changing business. In certain situations, a formal certified valuation may be required or warranted. However, CoreValue is an excellent solution for executive teams that want to determine where to invest effort and resources, and how to have the greatest impact in growing the enterprise value and profitability of their business.
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