The SMP Capital Partners team believes that every business owner should always know and understand their current market range of value. Armed with that data business owners can maximize efficiencies and profitability, plan for future needs, create stronger and more durable infrastructures, while constantly maintaining a state of readiness for when it is time to go to market.
People usually know how much equity they have built in their home, but a surprising number of business owners do not know their current business range of value. That is where the SMP Capital team can help. Our team initially provides a complementary business valuation that establishes a range of value based on a historical and year-to-date financial data analysis, a study of recent comparable industry sales, and an examination of commonly held industry standard metrics that include infrastructure and org chart strength, customer concentration and historical retention, owner role, and growth potential.
Once the SMP Capital team establishes a range of value, business owners can improve process efficiencies, solidify client loyalty, create operational stability, improve org chart performance, build long term planning strategies, and regularly measure and optimize business performance.
Improved Process Efficiencies
Industries evolve on a continuum and economic conditions ebb and flow. Once business owners understand their range of value, they are more efficient, consistent, and effective problem solvers which creates stability and reduces risk. They are better prepared to manage systems and define procedures that enhance workflow regardless of industry dynamics and economic volatility; and consistently create value and build trust for your team and customer base.
Client Loyalty
Clients and customers value consistency. People like to know what to expect. It is why certain contractors work under MSA’s and seldom bid on project work. Problem solvers who do not require a ton of oversight and regularly produce consistent performance are seldom out of work. Customers value and reward consistent performance which is easier to manage once a business properly manages and understands cash flow trends that a valuation report will establish.
Operational Stability
Once a business develops an operational process framework and establishes regular and transparent valuation examination, operational management becomes more effective. Business owners can track labor expenses more efficiently, boost productivity and better manage product and service profitability, while guaranteeing on time performance. Businesses that can accurately track product and service profitability show a foundational stability, strength, and an ability to adapt to changing business climates.
Organizational Chart Production
Execution is king. Strong execution relies on a strong team. Tenured organizational charts and businesses who are not owner dependent trade for higher multiples. If the business owner leaves town for the day and the operation falls apart, the company is not sustainable. If the business model is not executable without direct owner responsibility, potential buyers will have to assume a cost to replace the owner expense which can limit top end valuation. Once the team collectively understands concept, strategy, implementation and execution without direct owner oversight, business valuation increases immediately.
Succession Planning
Long term succession planning strengthens any organization. It takes foresight and experience to build out a succession plan. Although each business’s needs are unique and specific, there are certain standards which are universal. Establishing critical processes, determining key performance metrics necessary for business continuity, and focusing on individual and group development to meet future business needs are all components of long-term planning that require regular valuation assessment.
Regular Business Valuation
Every business owner should always know their current business value. Knowing and understanding your business’s range of value will make your operation more efficient, durable, sustainable, and profitable. In addition, a current business valuation can help facilitate clear forecasts & projections, while generating a stronger, more transparent and resilient infrastructure.
A current business valuation is the critical component of a successful transaction and you will need current and accurate financial and accounting data readily available for review. Annual business valuations should be as routine as counting inventory, quarterly reporting, payroll, budget forecasting, tax preparation, and performance reviews. It should be a routine and regularly expected component of business operation. Adding an annual business valuation update to your routine business health check ups every year will normalize the process to avoid unusual or unexpected fears from your dedicated team of employees.
How to Read a Business Valuation
- Start with Purpose
Valuations can serve multiple purposes i.e.: transactional, capex investment, financing, litigation, estate planning, divorce, or tax prep purposes. The purpose determines the method and valuation assumptions. - Valuations are Moments in Time
Business value changes over time. It is important to have regular updates because market conditions, financial performance, and interest rates change on a continuum. - Identify the Standard
Common standards include fair market value, investment value, and asset value. Each produces distinct conclusions, so it is important to identify purpose and approach. - Company Synopsis
A comprehensive business valuation will examine industry data, business modeling, customer type and concentration, ownership structure, key management team members, and key risk metrics. Thorough detail will provide the context and nuance behind the numbers. - Financial Analysis
Revenue trends, profitability, margins, cash flow, debt, working capital, and owner adjustments are all key valuation components. Consistently strong and upward trending financial performance generally supports a higher range of values. - Valuation Methodology
Business valuations generally incorporate one or more approaches:- Income approach: value based on expected future cash flow
- Market approach: compares the business to similar companies and recent transaction metrics
- Asset approach: value based on assets minus liabilities
- Assumptions and Adjustments
Valuations depend heavily on assumptions such as growth projections, discount rates, owner compensation, one-time/non-reoccurring expenses, and comparative multiples. It is critical to accurately account cash flow adjustments because slight modifications can significantly impact value. - Range of Value Calculation
The range of value may vary based on the calculation metrics. It is important to understand whether the calculation represents the entire company value or a minority ownership interest. - Discounts and Premiums
Valuation reports may include discounts for lack of control, marketability, or premiums for control; and can materially change the range of value. - Limitations and Disclaimers
It is important to verify what the valuation does and does not measure. All valuation reports depend on accurate information provided by the business. Information quality and precision absolutely impact value.
Once we have established an acceptable range of value, discussed potential deal structures, and the business ownership determines that it is time to hit the market, the SMP Capital Partners team work to create a controlled transactional environment where multiple buyer targets simultaneously compete for the same opportunity. We want to bring a carefully curated list of qualified buyer prospects to the conversation early & we never stop negotiating on your behalf. From the initial buyer prospect conversations to LOI analysis, from due diligence coordination to legal documentation and on to closing, the SMP Capital Partners team never stops working to generate the most positive result possible for you and your shareholders.
That is the SMP Capital Difference. That is what separates us in the market, we are committed to help you drive your business forward and maximize your business value. We will give you a ton of valuable information that we know will make your business a stronger operation. Contact our team today to get started.