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Business value presentation 05 25 2011

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Understanding the value of your business will help you determine how to maximize its value.

Understanding the value of your business will help you determine how to maximize its value.

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  • The majority of business owners do not know the value of their business, likely the largest asset they own. This presentation will explain the basics of business valuation and its importance for long-term wealth development. Business Owners will learn the areas of their business that can be managed to increase value and marketability. Key Point: Start with the end in mind.
  • Transcript

    • 1. Understand and Maximize the Value of Your Business
      Rodney Wolfe, CMA, CCIM, BCI
      Principal/Broker
      Murphy Business & Financial of Southwest Idaho, LLC
      1
      David C. Smith
      Managing Partner
      Valens Point, LLC
    • 2. What we will cover:
      Basics of business valuation and importance for long-term wealth
      What are the areas of your business that can be managed to increase value and marketability
      2
      Understand and Maximize the Value of Your Business
      Income
      or
      Wealth?
    • 3. Understand and Maximize the Value of Your Business
      Objectives
      Business Market Overview
      Understand Valuation
      Examine Usefulness of Valuation
      Determine ways to Maximize Business Value
      3
      Are you building wealth or generating an income?
    • 4. Every business owner will leave their business one day.
      Seller’s Worries
      Buyer’s Worries
      • HOW MUCH IS IT WORTH?
      • 5. Who will buy my business?
      • 6. How do I find a good buyer for my company?
      • 7. Can I sell it to my good employees?
      • 8. Which advisors do I need to help me?
      • 9. How long will it take to sell?
      • 10. HOW MUCH IS IT WORTH?
      • 11. Who will sell me their company?
      • 12. How do I find a good company to buy?
      • 13. Will the good employees quit if I buy it?
      • 14. Which advisors do I need to help me?
      • 15. How long will it take to buy my business?
    • What businesses are for sale? How many actually sell?
      Source: Business Brokerage Press, Inc. Used with permission
    • 16. Percentage of Businesses sold In U.S 2009
      By Size Category
    • 17. Valuation for Purposes of Sale
      Most small businesses are sold on the strength of cash flows -- not assets. The Market Method is the most effective way of valuing a small business.
      Problem: How can you find out these values to maximize the price of your business? Solution: Hire experts.
      Good valuation knowledge better gauges value, provides benchmarks for business improvement, and supports sale negotiations.
    • 18. How are they valued?
      Owners Discretionary Cash Flow (ODCF):
      The amount of money the owner can take out of the business annually
      Net Income before taxes
      PLUS
      Owner’s salary
      Depreciation/amortization
      Interest expense
      Non-recurring expenses
      Owner perks (personal travel, auto, health insurance, etc.)
      It’s important to establish a benchmark. You manage what you measure!
    • 19. Current Market Valuation Example
      Multiples of Discretionary Earnings
      3.3
      2.8
      2.1
      2.3
      Distribution Manufacturing Retail Service
    • 20. Risks of Using Rules of Thumb
      Do these two Companies Deserve Equal Market Value?
    • 21. Justification of Value
      11
      *ODCF must provide the owner with a reasonable salary, provide a reasonable rate of return on the buyer's investment, provide for annual capital expense, and cover debt service with a reasonable debt coverage ratio or the business is overvalued.
    • 22. Understand and Maximize the Value of Your Business
      How would you view the two businesses?
      Financial data only?
      Owner Lifestyle?
      Situation of the business?
      Ability to continue in business?
      Most Owner’s have an inflated expectation of value
      12
      Knowledge of the business value allows for better strategic planning and action (Sellability) - what gets measured gets managed!
    • 23. 13
      Sellability
      Growth
      Profit-
      ability
      Focus on the areas of your business that make it successful and will make it attractive to potential business buyers.
      Manage and operate your business like you will leave it in the future!
      Sellability
      Sustain-ability
      Risk
    • 24. Sellability: Growth
      14
      Growth
      Demonstrated revenue, profit, customer and offering growth over period of time (i.e. 2 – 3 Years).
      Successful financial picture is attractive to external viewers.
      Action: Identify strategic areas of growth (i.e. acquiring new customers, complimentary products / services)
      Profit-
      ability
      Sustain-ability
      Risk
    • 25. 15
      Sellability: Profitability
      Profitability
      Planned and achieved profitability: customer, product, location, employee.
      Profitability is key to increased valuation and demonstrates solid management and performance.
      Action: Create and manage the systems in your business that produce consistent results and increase effectiveness.
      Growth
      Sustain-ability
      Risk
    • 26. Sellability: Sustainability
      Key systems and the and ability to transfer of customers, contract, and key management/employees.
      Sustainability is critical to sustained successand helps owner achieve ROI.
      Action: Identify and implement key systems. Ensure business assets can transfer to new owner.
      Growth
      Profit-
      ability
      Sustainability
      Risk
      16
    • 27. 17
      Sellability: Risk
      Identification and mitigation of risk.
      Risk mitigation demonstrates sound management and increases probability of success. This builds confidence.
      Action: Review financial, legal, environment, competitive, and industry risk and implement mitigation plans.
      Growth
      Profit-
      ability
      Sustainability
      Risk
    • 28. 18
      Takeaways
      Questions to consider
      Are you building wealth or generating an income?
      Do you know the value of your business?
      What management decisions would you make if you knew the value?
      What is your business exit strategy?
      Actions
      Understand your businesses value.
      Set long term goals for your performance, business value, and transition plans.
      Implement a management strategy that reflects wealth creation.
    • 29. 19
      Questions?
      Thank You!
      David C. Smith
      Managing Partner
      Valens Point, LLC
      Rodney Wolfe, CMA, CCIM, BCI
      Principal/Broker
      Murphy Business & Financial of Southwest Idaho, LLC