Value Drivers or Life Drivers?

Value Drivers or Life Drivers?

I recently caught up on some reading about the value drivers to consider when selling a business. The consistent message was, just focus on 5 or 10 value drivers and you’ll maximize the value of your business when you sell it. My reaction: there’s a lot more to “maximizing the value” than this.

When I meet with a business owner, I get to know the business history, the business strengths and weaknesses (i.e. the value drivers), and other key pieces of information. I’ll deliver an estimate of the business value and review it with the owner. And sometimes, the response is … “I understand it, but I’m not going to sell my company for that”. Translation, the owner just isn’t ready to go to market … regardless of the “value drivers”.

Here’s what I’ve learned over the past 20-years. When a business owner is considering “exiting” their business, something has happened in their world, something has changed…let’s call them the life drivers.

For instance:

  • A personal matter – health issue, financial change, moving somewhere
  • A family matter that needs attention
  • Concern about surviving the next “market correction”
  • Worry how the next surge/variant of COVID will impact business
  • Just not as attentive or as “connected” to the business
  • “I don’t know what it is, but something is keeping me up at night”

Here’s my point.

    • Value drivers matter but generally, life drivers are the real motivation
    • Life drivers are private and personal; sometimes hard to see them
    • Understand how the life drivers might impact the negotiation
    • In the end, the maximum value of the business is the result of good-faith negotiations by both parties. And there’s no list of value driver for that.

Like you, we’re small business owners. We get it, and we’d love to discuss it with you. Give us a call for a free consultation.  We appreciate the opportunity to help out.


This post was written by Eddie Davis, C.P.A., C.V.A. , Harvest Business Advisors partner.

 

Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

 

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services.

 

We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

A Quick and Usable Year-End Succession and Strategic Planning Method

Business owners and particularly owners of construction firms often find planning a waste of time either because “things keep changing” or because “we go through this whole process and then do not look at the thing until next year”.    The very simple system explained below is designed to address both of those issues.  Of course, you must develop the practice and habit of monthly review to fully implement this program.

Time to Sell Your Construction Business? Please click here to download the e-book, “A Contractor’s Guide to Succession Planning”.

Planning:

  • You build projects from plans and specifications.  You build your business the same way.
  • Planning is an opportunity to receive input from your team.  In the process they assume responsibility.  Many heads really are better than one.  This is also a very good start to delegation – a key to growing a business and creating value
  • Planning, as I mean it for most contractors is not 100 pages of fluff.
    • It is one page setting your vision, mission, and your major goals
    • It is a few pages of financial budgets or projections (including a work-in-process or WIP schedule for many firms) shown in terms of both dollars and some sort of meaningful units (usually jobs, but could be other units), perhaps monthly for the next year and then 2 to 4 more years annually.
    • It is a 90 day checklist of improvements (what is to be done, who is to do it, when is it due by) to meet the major goal and financial projections.
  • Depending on the trade or the size of your company you might add:  capital investment section, technology section, etc.  But the essence is major goals, financial and unit projections and a checklist of improvements.
  • The plan should be reviewed EVERY MONTH along with high level management KPI’s (Key Performance Indicators).  Every month, the 90 day goals section should be updated with new goals as the old ones are accomplished.
  • A critical part of any plan is the succession portion.  If succession is always discussed as part of the process of running a business, then it will not be unusual or shocking to people.  Further, as secession event can be promoted as the opportunity it is for management growth.  Clearly this section might only be discussed with the higher level management team and outside advisors, but it should be part of the process.
  • Proper planning and management of budgets and KPI’s is essential to the growth of any firm.  It is the equivalent of an architectural plan for our firm.  If you are not regularly engaged in this process – ADD IT.

From the Whitepaper, “Whats Your Number, A Contractors Guide to Contingency and Succession Planning”(While geared to Contractors the paper is great advice for all business owners and their advisors).


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

How to Increase Profitability to Increase Business Value Before Hiring a Business Broker

Before you engage a business broker to sell your business you must answer the question:

How can you become profitable – real profitable?

 

In 95% of the cases business profitability is the key to business value.  Before you hire a business broker, investment banker or intermediary to sell your business you first must create value.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

When most people think of profits they think of growth.  I love growth but growth often costs money in the short term.   If you have 5 years until you sell or if you can grow and maintain your profit margin then by all means grow.

 

For most companies increasing profitability means CUTTING EXPENSES.  You probably can do with less.  You probably can be more efficient.  Get over it.  Decide you can then open your mind to new and different ways to do it.  Can schedules be adjusted, can materials be purchased differently, can more work or less work be subbed out, and can you make a full time employee in the office part time?

 

One key is efficiency.  Namely the fact that overhead tends to stay constant so throwing more work at the administrative functions tends to lower those costs per unit.  The other way to get there and often the more realistic way is to remove some people, remove some office space, remove some office perks etc.  Lower your costs.  Get people busy, too busy to complain about being busy.

 

One way to measure efficiency is to BENCHMARK your financial information against your competitors.  This requires maintaining financial information in an industry standard format.  Many industries have this (check with your larger trade associations) some do not.  Benchmark data is available from many trade associations and several services.  Every business runs differently so you may have very good reasons for varying from the benchmark data.  Just make sure overall your costs are lower than those in at least the 75 percentile.  That is companies performing in the top 25%.  Shoot for the top 10% and get there.  Average is no good.  The average company does not sell unless you have more than $35 million or so in revenues.

 

Another area to monitor is capital investment.  You must keep your equipment running and in good repair.  But you should not make major capital investments (for instance build a new warehouse) that will lower your short term profits even though they might benefit you downstream.  No one will give you credit for the future potential.  Potential is just a dirty word.  (Do you pay employees for their potential or for what they did today?)

 

There are thousands of books on business management, construction management, cost controls, etc.  There are legions of consultants who will show you how to reduce costs.  If you are stuck, I suggest you look to them for advice on how to achieve this goal.  But, as Nike says,” Just Do It”.

 

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.