Business valuation is a vital component of an effective pre-sale planning strategy. It allows entrepreneurs to understand what drives the value of their company and implement key changes in their business model to increase value in the future.
At VSP, we prepare professional business valuation reports that offer insights on how to strategically increase your business’s value over time prior to a sale. This report also helps you better prepare for an exit or sale and reduce the likelihood of shareholder or matrimonial disputes over value. To learn more, feel free to call us at 905-305-8775.
VSP is a business planning and valuation services firm based in Toronto, Ontario. In addition to pre-sale planning, we also specialize in litigation support and transaction advisory services.
How can a company valuation contribute to value enhancement? Let’s go over the basics of pre-sale planning and the process of valuing your business.
What is the Right Formula for a Business Valuation?
Business valuation is all about timing and maximizing your business to its fullest during that period. You should consider a value enhancement initiative around 3 – 5 years before you plan to sell, exit, or undergo a significant change in control of your business.
Having your business independently valued on an annual or somewhat regular basis means you won’t have to scramble around at the last minute should unfortunate circumstances arise such as death, disability, divorce, departure or disagreement.
VSP can help you prepare by identifying ways to enhance the quantity and quality of your cash flows and minimize the risks associated with your company and its future cash flows.
VSP has developed a formalized process to assessing the key value drivers for your business and can provide you with recommendations on how to exploit those key value drivers to enhance the value of your business.
By taking these measures, you will ensure you are able to maximize the value of the business and not leave any money on the table when you exit.
How Do You Determine Your Business’s Market Value?
Without a reliable third party valuation, the business owner may arrive at an unrealistic sense of how much the company is worth, which will likely be at odds with what potential investors, other shareholders and other important stakeholders come up with.
Determining the fair market value of your business can involve several factors. Generally, the first step involves a review of the company’s balance sheet and adjusting the book value of assets and liabilities to their market values.
The next step is to evaluate how much the business generates annually. The valuator calculates your business’s worth based on the quantum and quality of the company’s projected sales and operating cash flows. Valuation multiples (e.g. cash flow or EBITDA multiples) are applied to the projected operating cash flow stream to convert the annual cash flows to a lump-sum value for the business operations. Non-operating (or redundant) assets are then added and interest bearing/related party debt is deducted to arrive at a value for the equity of your business. This provides valuable information to allow you to effectively negotiate with prospective buyers.
If you’re thinking about selling your business one day, it is important to look beyond the numbers and consider the story of your business (where it has been and where it is going), the various risk factors (controllable and uncontrollable) facing your business and the potential synergistic value to a potential strategic purchaser.
What Are the Methods of Pre-Sale Planning & Valuation?
Pre-sale planning and valuation are critical steps to consider if you’re looking to sell your business in the coming years.
We determine the value of your business and the key value drivers that will enhance your business’s strength. Pre-sale planning ultimately culminates into a teaser document, a confidential information memorandum, and a pre-sale diligence package for buyers to review.
There are many steps involved, but we aim to simplify the process and help you sell your business at its best value.
Get a Professional Independent Valuation To Maximize Your Business’s Value
It’s all about timing and maximizing the value of your business takes time.
VSP offers professional, independent and supportable valuation services that will help you make smart and informed business decisions.
VSP has the credentials, experience and expertise to help you establish a plan to systematically increase the value of your business.
Contact VSP to learn how we can help you protect and secure your company’s future.