Valuation Obsession

As a Business Consultant to small companies (2-200 employees), I often come across the owner dilemma of fading interest in their venture and a desire to leave the business. But then what? Who takes the reigns? Who is willing to buy the venture? And my God, at what price?

I feel like I have hit paydirt with a combo software that has come to market: webKPI with Fintel financial analysis. It is a web application that is so easy, anyone could use it. Now, anyone might not understand what it's telling you. For that, I'd suggest a professional business advisor to interpret the results. But here's how it goes:

Load up a QuickBooks file (P&L and Bal Sheet) to the webKPI on-line application. This of course, assumes you've already purchased the product. You can then see sooooo many things like WHAT YOUR COMPANY IS WORTH, for starters. Ok, that should have been the grand finale but since it is my lead-off topic and my great obsession in life to give small business owners a shot at getting true value for their businesses at sale time, I can't help myself. So there it is: a dashboard of financial metrics not the least of which is a moment-by-moment valuation of a business. How do you like them apples? It is often said to calculate a valuation is part art, part science. Fine, but there's a LOT of math and this program cranks that out in seconds. I have done valuations by hand many times. They take a long time even with great Excel models. Each company is different and adjustments have to be made. Overall, the great effort is in the calculations and this program does it quickly and accurately. I am so happy this product exists. I do not currently use it in my business consulting practice but I have in the past. Good guys who invented it and who still own it to this day. Good product, fair price, time-saver. Win-win-win.

What is my worth?

This can be an existential question or a business owner's dilemma. I come across it often when business owners look for advice on how to raise capital and don't know how much to give to those who invest in or buy their company.

So, how does one calculate one's worth? The concept of Valuation in business circles can range from the simplest conversation to the most complex financial models. Ultimately, whatever a Buyer is willing to pay a Seller is the true Value. That of course, assumes that all potential Buyers know the opportunity is available. Otherwise, the one Buyer who does the deal may just be getting a bargain or even overpaying since there is no one else in the deal to validate the purchase price.

Many deals are ultimately done with the "back of the envelope" method. These can be summary multiples of Gross Revenue used in simple math to calculate a company's value. Such multiples are readily researched for most industries making the calculation fast and easy. They only provide a point of negotiation. There is no absolute answer on business value. Worth repeating: What a willing buyer pays is the true value. What Buyer and Seller agree upon is the correct price on any deal, the correct worth at any point in time.