Article by Eric Purvis, Director of TAA Planning.eric




Where’s the value in your business?

Investing in diamonds

In order to gain some freedom from the demands of your business, or if you’re planning to exit, it’s critical to accelerate the value of the business. So let’s get some things straight about business value.

Let’s start with two facts about value:

  1. Most businesses are not saleable and don’t make it through the second generation.
  2. Income doesn’t automatically translate to value.

These two facts tell you something important – value isn’t something your business just has. The value in your business, while you are giving 100% to your business, tends to reside in you. Therefore, value is something you need to separate out from you, create and enhance in your business so it can operate with less involvement from you.

There are a set of major steps that can be applied too almost any business to determine value and plan its acceleration. These steps are:

  • Create a recast income statement and balance sheet;
  • Do a complete financial analysis;
  • Pull benchmarking data about industry performance and recent trade multiples;
  • Complete an Enterprise Value Assessment (EVA) which scores the business attractiveness and the owner’s personal, financial and business readiness; and
  • Correlate these scores with the business valuation and financial analysis.

Obviously these are complex processes that will probably require assistance from a professional. But the outcome is vital information. The process I’ve just described delivers this information:

  • A specific and qualified list of personal, financial and business strengths and weaknesses, correlated and used to justify present value and potential value;
  • A dollar value for your business;
  • A value enhancement target; and
  • A prioritized action plan of personal, financial and business actions which will be implemented via 90-Day “Sprints” – which I will explain soon.

Do you know where the value in your business lies – and is it mostly in you?