As a business owner or leader, do you have a strong understanding of the value of your business? Do you know the value generated in the past year? Can you identify which areas/segments of your business are contributing the most value and which are crushing the value? If the answer to any of these questions is “NO” you could be putting the future of your business at serious risk.
A business requires a valuation, when encountering any of the below strategic options:
- Setting up a joint venture or a strategic partnership
- Business restructuring
- Mergers and acquisitions
- Securing private financing in the form of equity
- Planning an exit strategy
- Passing on the business to a family member or members
If you own or manage an SME or family business, it’s imperative that you conduct a detailed valuation on a regular basis. This would be an essential step to find out what is going right, and more importantly, what may be going wrong in the business. Then, you can take corrective action before it’s too late. You could avoid spending precious resources courting the wrong customers, trying to grow areas of your business that are inevitably declining and failing to recognise and invest in those business areas that can deliver the highest value.
At EMCS we have developed, a new approach to the valuation exercises, that goes beyond just reviewing the past financial statements. We start by looking at external factors, such as the general economy and the industry performance the company operates in, drawing reliable comparisons with other players in the market. Following this external analysis, we turn our eye towards the key components making up the business, such as the business structures, the business governance and the internal capability for strategy formulation. We conclude this part of the analysis by summarising everything in a SWOT analysis that serves as a foundation for the business valuation.
Thus, in our approach to a valuation exercise the emphasis is on a closer analysis of your business’s most important value drivers and those characteristics that make a business unique; it could be the quality of leadership, pricing power or brand equity. We at EMCS, believe that a thorough and honest appraisal of these value drivers is essential to calculate a company’s value. Our approach therefore, includes both an appreciation of the qualitative and quantitative aspects of a business, rather than just the quantitative aspects that most other valuation methods base themselves on.
All the information gathered is used to base future forecasts. Market-rate multiples of public companies can also be used to assess the value of businesses similar to yours. In the case of a privately owned SME, we will adjust to lower multiples of M&A transaction of larger public companies.
Keeping a track of the exact value of your business on a regular basis is important, as it will allows you to:-
- Avoid selling your business at a discount when compared to its true value
- Focus more on how to improve your business by enhancing your value drivers
- Create a strategic plan that has value creation as the centrepiece
- Incentivise your staff based on the value they create rather than using revenue or EBITDA targets.
Reach out to discuss the options for your specific business needs – firstname.lastname@example.org