Focussing on the value of your company
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Focussing on the value of your company
- 1. Focussing On the Value of your Company a Powerful Tool Presented by: Jean-Bertrand de Lartigue © 2012 The Exit Planning Company
- 2. Value, Measure, & Increase the Goodwill Goodwill = Potential sales value – Liquidation Value © 2012 The Exit Planning Company
- 3. Liquidation Value 3 © 2012 The Exit Planning Company
- 4. Replacement Value © 2012 The Exit Planning Company
- 5. Investment Value © 2012 The Exit Planning Company
- 6. Fair Market Value The amount at which a business or property would change hands between a willing buyer and a willing seller when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts. © 2012 The Exit Planning Company
- 7. Going-Concern Value 7 © 2012 The Exit Planning Company
- 8. Understanding Value Value vs. Price Value is perceived - price is reality Price of business is part most debated/fought. Buyer and Seller usually DO NOT agree or share same perspective. Buyer synergies Seller economies of urgency, health, dis scale, lifestyles, etc putes, etc PRICE © 2012 The Exit Planning Company
- 9. Value Drivers Profit X 6 Profit X 3 © 2012 The Exit Planning Company
- 10. Value Drivers Marketing Branding Customer Dependence Dependencies (Vulnerability to economy) Industry Status (Market Trend) Market Customer Concentration Market Niche Market Penetration Market Risk Market Saturation Public Relations © 2012 The Exit Planning Company
- 11. Value Drivers Operational Accreditations Regulations Assets (Equipment/ Supply Dependency Machinery) Systems Cyclical nature Technology Intellectual Property Transition / Training Inventory Turns Licenses Obsolescence (Equipment, Systems, Inventory) Portability Procedure Manuals Product Maturity Purchasing Power Research & Development © 2012 The Exit Planning Company
- 12. Value Drivers Competition Barriers to Entry Competitive Advantage Product Differentiation © 2012 The Exit Planning Company
- 13. Value Drivers Management Control Or Lack Of Family Relations Knowledge Owner Dependency © 2012 The Exit Planning Company
- 14. Value Drivers Premises Aesthetics Lease Location Other advantages © 2012 The Exit Planning Company
- 15. Value Drivers Benchmarks Sales levels CapEX Tax related (Rational/ Irrational) Contracts Cost Controls Credit Rating Earnings level Financial Earnings Sustainability Financial Cleanliness Financial Leverage Financial Plans and Budgets Free Cash Flow Future earnings Growth History Margins Receivables and collectability (Liquidity) Risk ROI © 2012 The Exit Planning Company
- 16. Value Drivers Human Resources Creativity Key personnel Cross training Leadership Culture Unionization Efficiency TUPE Employee Manuals Employees Empowerment Job Descriptions © 2012 The Exit Planning Company
- 17. © 2012 The Exit Planning Company
- 18. 42 $ 38 $ 25 $ © 2012 The Exit Planning Company
- 19. Reduce Risk © 2012 The Exit Planning Company
- 20. External Factors © 2012 The Exit Planning Company
- 21. Internal Factors © 2012 The Exit Planning Company
- 22. Double Triple © 2012 The Exit Planning Company
- 23. How do we grow value? © 2012 The Exit Planning Company
- 24. Value Pyramid Owner Driven Business © 2012 The Exit Planning Company
- 25. Value Pyramid People Driven © 2012 The Exit Planning Company
- 26. Value Pyramide Business Run by Systems © 2012 The Exit Planning Company
- 27. Value Pyramide Culture © 2012 The Exit Planning Company
- 28. Measuring Goodwill Value © 2012 The Exit Planning Company
- 29. The Goodwill Diagnostic 200+ questions Covering all aspects of business value © 2012 The Exit Planning Company
- 30. Mini Diagnostic Is your firm ready for your departure? 1. Does your company have a 3-5 year strategic objective, outlining your overall goals? If so, how effective is it? 2. How effectively does your company utilize key performance indicators to track its ongoing success? 3. How complete are your company’s systems for recruiting, retaining, developing and managing your employees? 4. How defined is your company’s unique market position (why your business is unique) in the eyes of your customers? 5. How dedicated are your employees to doing the best job possible, even when you are not present? 6. How effectively does your company utilize an annual calendar to manage its business cycle (i.e. employee reviews, budget reviews, special events, etc)? 7. How effectively does your company deliver on its production or service demands? 8. How well do your employees work together as a team for the betterment of the company? 9. How effective are your lead generation and sales systems when you are not around? 10. How well would your company survive if you took a six-month vacation? Total /100 © 2012 The Exit Planning Company
- 31. Total Goodwill Value Goodwill Value Goodwill Value by Business Activities 100% 90% 80% 35% 42% 55% 53% 70% 60% Goodwill 67% Potential Value %, 60% Potential Goodwill Value, 48% 50% Goodwill Value 52% 40% Goodwill Value 65% 30% 58% 45% 47% 20% 40% 33% 10% 0% t g e ns s ip en in nc le sh tio et em Sa na er k ra ar ag Fi ad pe M an Le O M © 2012 The Exit Planning Company
- 32. Business Drivers Business Drivers Systems 7% Owner 47% Employee 46% © 2012 The Exit Planning Company
- 33. Business Drivers Drivers by Category 100.00% 90.00% 80.00% 70.00% 60.00% Owner 50.00% Employee 40.00% Systems 30.00% 20.00% 10.00% 0.00% t g e s e ns p en le tin ag nc hi tio em Sa s ke na er er ra Av ag ar Fi ad pe M an Le O M © 2012 The Exit Planning Company
- 34. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Strategy Operational Independence Corporate Culture Target Marketing Market Positioning Brand image Financial Controls General Value Indicators Budget General Value Indicators Accountability Financial Analysis Financial Health Operational Efficiency General Systemization Business Analysis © 2012 The Exit Planning Company
- 35. Co re Op Co e r mp a e 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Pr R t ion ten od & s cy uc D KP tio Sy I' s n ste Qu S Sys ms al ch tem De ity A ed s u Cu liver ssu ling Eq Fac o st y S ran uip ilit me yst ce m y M r S em Re en a er s lia t M int vic nc S ain ena e Ke e af te nc y E O on ety nan e m wne Ma Sys ce plo r in t e Ke y D S m y E Ow Alt ee rive upp s er Dr n lie m ne n iv V r plo r at e e ye Driv ive n V ndo e e R e r Sy Dr n W eso ndo ste ive o ur r Ke m n W rk O ce at s y E Ow i o rd m ne V c W rk O ers p e o Cu Bu loy r Re nd rk rde st C e sin ees pr or C O rd rs om u s Re ese on ers s s p n tr Cu ers t om Rep res ts Q act st I nt ers re en ua s Pr om era I n sen t Q lity od ers ct t e t s ua uc in w/ rac Q lity ti te K t u M on ra ey w/ alit In ach Re ct w Em Ow y ve in qu it p ne stm e ire h B loy r Pr en Inte s H us ees od t R ns um ine uc i M ts Ca equ ve an ss Operations Goodwill Breakdown ist U p ir Pr Sk ak pg ac ed od ill es ra it y fo uc Re de for r G t io cti d In Ex row n fie d pa th d ep ns In e i Cu de nde on st pen nt l o y Ba me den Pr rrie r Lo t ly Or op rs t yal ig rie o E ty in ta of ry nt r In To y IP nov ols Pr ati ot on ec t io n In-Depth Analysis © 2012 The Exit Planning Company
- 36. Value Building Tools © 2012 The Exit Planning Company
- 37. Business Manuals © 2012 The Exit Planning Company
- 38. Employee Manuals © 2012 The Exit Planning Company
- 39. Analysis Manual © 2012 The Exit Planning Company
- 40. Business Calendar © 2012 The Exit Planning Company
- 41. © 2012 The Exit Planning Company
- 42. By focusing on value, you get… © 2012 The Exit Planning Company
- 43. © 2012 The Exit Planning Company
- 44. © 2012 The Exit Planning Company
- 45. Management or Employee Buy Out/In © 2012 The Exit Planning Company
- 46. The Fair Heired One © 2012 The Exit Planning Company
- 47. © 2012 The Exit Planning Company
- 48. © 2012 The Exit Planning Company
- 49. © 2012 The Exit Planning Company
Editor's Notes
- First – lets talk about the different kinds of value – can anyone think of a few?
- Liquidation ValueThe estimated amount of money that an asset or company could quickly be sold for, such as if it were to go out of business.Usually pennies on the dollar – Goodwill Value represents the value of a company over and above its liquidation value.
- Replacement ValueThe amount that an entity would have to pay, at the present time, to replace the assets of the business.Antique Roadshow – insurance value
- Investment ValueThe estimated value of an investment to a particular individual or institutional investor. It may be greater or less than Market Value depending on the investor's particular situation.Usually, relative to synergiesReturn on Investment – risk verses reward - liquidity
- Fair Market ValueThe amount at which a business or property would change hands between a willing buyer and a willing seller when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts. – this is a fairy tale much like the unicorn – in the real world there all always pressures and constraints on one party or another
- Going-Concern ValueThe value of a company as an ongoing entity. Unlike liquidation value, the ability of the company to continue to earn profit is considered.Most Probable Selling Price This value is comprised of the value of its tangible assets plus intangible assets (goodwill)Now that we have discussed types of value let’s talk about value itself.
- Value is measured differently by each buyer or owner40% of the business sales that fail fail due to a difference in price and value between the buyer and the sellerStructure of the deal can affects valueWhat is my business worth – everyone’s favorite questionThe obvious answer is that it is only worth what someone is willing to pay for itIt will also be worth different amounts to different individuals or companiesTherefore – in order to set a price you need to calculate the estimated value for your most likely buyer
- Factors that differentiate an 6x+ multiple business from a 3x (an “A” business from a “C” business)These are characteristics that either reduce the risk associated with owning the business or enhance the prospects that the business will grow significantly in the future. Every business would want these Value Drivers to be in place as you exit the business to ensure that the business can continue and that you will receive the income stream you need to reach your financial objectives.ASK: Who can name a few? Recent profit history General condition/characteristics of Co. Market demand for particular type of biz Economic conditions Ability to transfer goodwill / other intangible values to a new owner
- FINAL THOUGHTS ON VALUE DRIVERS: These Value Drivers are not dreamed up by a business school professor but are what professional, sophisticated buyers seek in closely-held businesses. Need to work on enhancing these Values before the sales process begins will help you get top dollar. Also create a tax-efficient business structure before the sale begins
- Most of those value drivers are intangible factors which make up part of the value of a business:GoodwillSome people argue that there is no value to goodwill and that you can’t sell goodwill – here’s a whole store of it!In business, your intellectual capital is measured by your goodwillGoodwill = (fair market value - tangible assets)Personal goodwillIndividual goodwillBusiness goodwill
- To reduce risk and grow value… Business continuityTransform personal (and individual) goodwill into business goodwillMaximize business goodwill valueExternal factorsInternal factors
- External factors Changes in worldwide/regional/local economiesTechnological changesGovernmental and regulatory changes
- Internal Factors Employees and other stakeholdersExisting business systems and processesleadership, management, marketing, finance, operations, sales
- How much growth is possible?In many cases… goodwill value can be systematically doubled or even tripled in 3 years or less
- Increasing value should be the business owner’s number one goal.
- A business that can be sold for more money
- A business that can be sold more easily
- A business that can survive a management buyout
- A business that can survive a family succession
- A business with greater growth potential
- A business that can capitalize on a recession
- A business that is not operationally dependent on its owner