The value of your business is based on a number of factors that fall under two major categories:
The first category essentially boils down to revenue and earnings. The more you can create of both, the better the valuation of your business!
However, the second category is where most of your company’s value will be found. In fact, according to our research, about 80% of the value of most businesses can be attributed to its intangible assets.
So with that intro, you might now ask “Ok, so how do I increase the value of my business?”
Let’s start with the tangible side of the equation. Essentially the more you can grow your revenue while also growing your earnings, the better the impact on your business valuation. I don’t mean to oversimplify this because in some cases it is hard to do both simultaneously; the reality is if you focus on top-line growth and your profit margins suffer, you may actually detrimentally impact your business valuation.
Sadly we all too often see this: A business owner focusing on growing revenue by cutting prices to get more business. Unfortunately, when doing so, revenue may grow but profit margins decline, which is a red flag to many buyers. So be sure to grow your business, but do not do so at the expense (no pun intended) of your profit margins.
Remember – buyers are buying your future earnings, and more than anything else they would prefer to see consistent stable revenue growth with solid margins that improve over time.
As for intangibles (also known as off-balance sheet assets), these items are incredibly valuable and their perceived “value” will often vary from buyer to buyer. Here is a short list of some intangibles that buyers frequently look for in their acquisition targets:
As mentioned (and as you can now see), this short list of valuable intangibles will vary based on each buyer’s needs. Some buyers may be attracted to your blue-chip customer base, others may be after the talent and skilled team you have built, and for some, your proprietary in-house created systems could be important.
What is most important is this: When you market your business to prospective buyers, be sure to adequately and accurately document your intangible assets. If you do not articulate that which makes you unique, you will “undervalue” the business and most likely sell for far less of a premium than you would if you did highlight your intangibles.
Because it is the intangibles which will drive your value up above the economic value of the business based purely on future earnings.
What has made Generational Equity so successful over the years is our ability to master both the art and the science of selling businesses.
The science is carefully and accurately recasting earnings to reflect the true profitability of the business, and then documenting the future growth of our clients so that buyers can see where the revenue/earnings are truly heading.
The art is learning about each business, determining what makes it unique, and then finding buyers who are willing to pay a premium to obtain those intangible assets.
The really wise business owner hires us long before they are ready to exit, so we can work with him/her to build the intangible asset base. This means that when the owner is ready to move on, the business has a long list of intangibles that have been built into the company over the years. This is what buyers are looking for: Stable businesses where future risk is outweighed by solidly documented off-balance sheet assets.
To learn more about how to increase the value of your business, you should set aside some time and attend a Generational exit planning conference in your area. The investment of a few hours of your time will pay off handsomely down the road as you find a buyer willing to pay a premium for your company. To learn more, please use the following links:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2020 Generational Equity, LLC All Rights Reserved
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
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