What is my Company worth today as I go to market? The easy answer is a multiple of revenue or earnings. It is desire to take an art and make it science. We love the scoreboard in sports and the business world.
But for me, it is clearly more than that. How does an investor look at this? Often times it is implicit but maybe not ….. you can really look at this more analytically then one might think. Looking at this objectively — as an investor or buyer might – can be very helpful in looking at valuations ranges more precisely (dangerous word but we will use it anyway today).
Sample Report Card – Score each are from 1 (lowest) to 10 (higher)
Growth in Revenues – faster than competitors, than market growth?
Market Size – is it sizeable, have it measured?
Gross Margins – better or worse than your industry? Improving or deteriorating?
Intellectual Property – do you have it? US / International? How long to expiration? What kind?
Market Channels – diverse, relevant, “figured out”, mesh with the way your industry works?
Management Team – energetic, visionary, entrepreneurial, experienced, coachable?
Clients – high profile, diversified, growing?
Pricing – do you have customers paying full market price? How does this compare to the industry pricing?
Sales Team – seasoned, compensation structure in line with market? Would buyer have issue with this structure down the road? Do you have non-compete / non-solicitation in place? CRM – have it , use it, tracking pipeline, win/loss ratios?
Gestation Period – how long to a get a sale? Processed defined?
Reporting – good financial reporting, a KPI dashboard, detailed projections
Growth Strategy – do you have one? MORE IMPORTANTLY, can YOU articulate it?
Capital Needs – how much funding is needed to drive growth? Debt is cheaper and better for an investor at a high level.
Revenue Model – is it big ticket? Or are you reliant on recurring revenues? If you are dependent on a recurring payment business model there are a few steps that you might want to take. For instance, if you are responsible for a digital ecommerce business, now might even be the time to invest in software to streamline your operations. Just read on to find out more.
Footnote: Not in order of relevance.
Grade your company. Each factor has a different weighting from one industry to another. But a high score in an area indicates you are doing the right thing. Then, monitor it prospectively – markets move swiftly in the 2000’s and where you have lower scores (every company has some), prioritize the weaker areas, develop an action plan to improve them and EXECUTE on them. You won’t be perfect. Problems go away when you have sold the company or gone out of business. Knowing the weaknesses, being able to articulate them and providing the action plan can mitigate the impact on valuation to some extent. Be honest in your internal assessment. The investor / buyer will. You never want to lose credibility – that damages the likelihood of closing the deal materially.
The report card should be another part of your quarterly / annual state of the Company review. The investor / buyer wants to buy at X and sell for a multiple of X down the road.
Is this worth the time? You bet –Here’s Why.
Be as prepared or more so than in investor/ buyer. Always! This exercise helps in that process. You can improve the value of your company prospectively if you are honest in your assessment. What is good and what can be improved? The investor / buyer is doing this on your company – I guarantee it.
Have questions? Regardless of the nature of the transaction, Evergreen has proven time and again that an objective view of the transaction values, assistance in negotiations and transaction support will maximize shareholder value. Give us a call at 410-997-6000