Valuing Your Largest Investment

No matter where their company is in its life cycle, all business owners want to enhance the value of their business. Business value, often called enterprise value (EV), refers to the value of the whole company as perceived by the marketplace

Business owners seeking funding (equity or debt), gifting, considering a change in ownership, selling a business, or even resolving various disputes need to know the worth of their company. The day may come when you will be looking at an exit strategy. You never know when the right opportunity to sell will present itself. Understanding ways to increase enterprise value will help you determine the amount that you can sell the company for at such a time.

Determining the Market Value

If you want to quickly evaluate your options when opportunities arise, you need to know not only your company’s current value, but also its desired value. According to a study by Dr. Gail Matthews, Phd, a professor of psychology at Dominican University, businesses are 77.6% more likely to achieve their goals when they have planned progress reports. We recommend setting goals and measuring results against these goals on a regular basis. This is the best way to work toward increasing enterprise value.

But businesses are all so different from one another that it is often difficult to find comparable pricing. So difficult, in fact, that venture capitalists valued 18% of the companies they purchased based upon “gut feel” (2020 Pepperdine Capital Market Survey). This, coming from a field filled with highly trained and paid financial analysts.

When you sell a house, you can look at comparable price per square foot, the neighbourhood, and the quality of the house. Once you determine these things, houses are similar enough that they will command a price within a certain range. Valuing a business, however, is much more complicated.

Effective Goal Setting

Understanding what your company will be worth at various points in the future can help you determine target values as well as the best time to exit. We encourage business owners to have a five-year window approximating when they want to sell a company. This ensures they are prepared to take advantage when the time is right. We also recommend early adoption of circular economy principles, and setting goals around revenue, gross margin targets, and net income generation to help increase your enterprise value.

Small business owners often have their heart, and soul, and most of their cash tied up in their business. But small or large, your company is typically your largest investment. Just as you may have a financial advisor for your personal investments, you also need an advisor to manage the value of your business. 

Axios Growth Consultants brings an invaluable strategic perspective drawn from many years of experience working with companies at different stages of growth. We deliver sustainable results through a strategic, cross-disciplinary approach to finance and operations. Our proven methods ensure the strategy is implemented and day-to-day operations support the end goal.  Contact us today so that we can help your company achieve the growth and success that you are envisioning.