The Business Intensive

Business owners, imagine solving 2 key business challenges in only 2 months?

Is it poor financial systems, reporting, profits, sales or people management? Or you simply need better systems to help you ‘get out from under the business’ to ‘back in control’?

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4 Keys To Skyrocket Your Business Valuation

As a business owner you are probably aware that there are many different factors that “drive” or impact the value of your business. There are so many in fact that if you were to make an exhaustive list it would likely fill several pages. If you had such a list where would you start?

If I were in your shoes I would want to start on the ones that have the “biggest bang for the buck.”

But how do you know which ones those are? I would like to give you a couple of clues that will start you down the right track. Before we get to that however, we need to talk about some of the motivations that buyers have when considering the purchase of a business.

Buyer Motivations

The following are some of the more common motivators for purchasers of businesses:

1. Many (more than you might think) are looking to “buy a job”;
2. To take control of their own destiny. The desire to be their own boss is a very real and very strong motivator for a considerable number of purchasers;
3. To realize an acceptable rate of return;
4. To achieve a market position or presence that they didn’t previously possess;
5. To eliminate competition;
6. To achieve “economies of scale” by way of cost savings, access to capital, vertical or horizontal integration, etc.;
7. To gain access to patented technology or processes;

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How Much Is My Business Worth?

If you are planning to sell your business, it’s clearly an advantage to have an objective valuation of what your business is worth. A valuation should ensure that all the hard work you have put into the business will be taken into account and included in the price.

However, a valuation can be important at other times as well. It can be useful if you are seeking investment capital, taking on a partner, or selling shares. A valuation can also indicate how you compare to your direct competitors. It can identify the strengths and weaknesses of your business. When a valuation identifies weaknesses, it can help you focus on building long-term value into your business. This will improve your outlook in terms of succession and estate planning.

However, many companies are oddly reluctant to invest in getting an accurate valuation. Only 29 percent of fast-growing companies have a current business valuation, according to a survey reported by A further nine percent are planning to get a valuation in the next 12 months, while 15 percent have a valuation that is no longer current. Forty-four percent of the companies had either no valuation or no plans to get one.  Continue reading

Valuation Rules of Thumb – Fact or Fiction?

Have you ever heard, “That business is worth 2 times gross revenue”; or “one year’s earnings plus inventory”; or “3 times last year’s EBITDA” and so on? Perhaps you’ve had somebody say this to you about your business.

All of the above are rules of thumb. The question is should you be relying on these rules of thumb as a means of deciding the value of your company? Should you be using them to decide on insurance coverage (business interruption and/or life policies to cover the purchase of your shares), asset mix within your investment portfolio, the purchase price of a competitor’s business, or the asking and/or sale price for your own business?

Based on my experience, I would guess that a number of you have at least been tempted to use a rule of thumb to determine one or more of the above. If you have, you are not alone. Let’s face it, in the absence of detailed valuation information you probably didn’t have any other readily available ‘yardstick’ to determine or estimate the value of your business. It’s only natural then to use one of these rules of thumb in the decision making process.

Over time, rules of thumb have become somewhat entrenched in particular industries. Does this make them right?

Just so there’s no confusion here, I’m going to answer that question with a very loud NO, no wiggle room, not sometimes, just “NO!”

Let me demonstrate my point by the use of an example. One rule of thumb that has been tossed around is that a golf course is worth 3 times average gross revenue. Let us assume we have two golf courses that are identical in every way with one exception, they have different bottom lines because one is more cost efficient than the other – lets take a look and see what our 3 times gross revenue rule of thumb would have us believe...   Continue reading

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