The value of a privately held businesses typically comes down to a simple equation – Profit times a Multiple equals business value. The multiple depends on the operational strength of the business as measured on both internal and external factors. Duke Business Advisors uses a tool developed at MIT and endorsed by The National Association of Certified Valuation Analysts (NACVA) measures a business’ performance on the parameters shown below in the diagram.
The Market driver performance measurement reflects how the business adjusts to the external world; internal business performance is measured against the Operational drivers. The results of this analysis provide an estimate of business value and the value gap, along with a roadmap to make corrective action to grow the value of the business.
Another summary list of factors that affect business value:
- Financial performance and accurate financial records
- Recurring revenue
- A business that can run without substantial involvement of the owner
- No over reliance on single employees, suppliers or customers
- A large market potential with room to grow
- Good cash flow
- Excellent customer satisfaction
- Product or service differentiation
A business consultant can work with a business owner by applying the appropriate tools to measure the business’ current performance status and business value and then create a roadmap to build business value. This makes sense, whether the owner is thinking of exiting soon or in several years because a valuable business is a profitable business and much more enjoyable to operate than a struggling business. That is why every business owner should consider Value Growth Consulting. Appropriately performed, value growth consulting will pay for itself many times over.
Business owners should begin exit planning about five years before they wish to exit their business. Importantly, for most business owners, the majority of their wealth resides in their illiquid business. To covert the illiquid business value into useable liquid funds, it is advisable to develop an exit strategy plan that maximizes the amount of liquid funds the owner keeps upon exiting. With their Exit Consultant, owners should determine their personal goals, assess theirs and their business’ readiness for an exit, identify and evaluate options, choose the best option, document the plan, and then execute the plan, all with the help of the Consultant. A lot of people assume that they will just sell their business. However, that is but one of several options.
There are many ways to transfer a business besides selling. There are Private Equity Recapitalizations, Employee Stock Ownership Plans, Management Buy-outs, and Gifting Programs. Timing is also key when transferring a business. The exact timing the owner wants to exit might not be the prime time to be the most profitable. It might have already past. It is best to speak with an experienced Exit Planner about these options several years in advance before exiting a business.
A Business Consultant you can trust based out of Charlotte, North Carolina is Duke Business Advisors Business Sales and Consulting. They specialize in techniques and strategies to increase the value of your business to maximize the dollars that come to you upon your exit.
The owner of Duke Business Advisors is Steve Duke who has held a variety of roles in Fortune 100 aerospace companies, including engineering, business development, program management, and general management, where he was responsible for profit and loss of a high technology business unit. As an entrepreneur, he owned and sold a small marketing services business, as well acted as a Chief Operating Officer for a start-up consumer products company. Steve is extremely knowledgeable about what it takes for a business to be successful.