Introducing a beneficial service for business owners: Business Value Enhancement

Partner Lloyd Compton explains how our Valuation team can help you better prepare for the future of your business

 

You may already know that MRSB Group has a fully integrated Valuation & Litigation Support division, and that we are well equipped to provide an in-depth valuation of your business. But while valuation is all about determining what your company is really worth for the purposes of sale or estate/succession planning, there is another reason for valuation that has the potential to actually increase business value and the wealth of its shareholders. I'd like to tell you a bit about this offering and how it might benefit you.

As demographics change in Canada (and elsewhere), there will predictably be an increasing number of businesses for sale. This inevitably means that potential buyers will have more choice in the market, which leads to competitive pricing on the part of sellers. Instead of accepting the possibility that your business may eventually be sold for less than its potential value, there are actions you can take in the here and now.

MRSB's valuation advisors have developed a process to identify your company's key value drivers and will prepare an action plan that will enhance these drivers and result in less risk to you, the owner, and therefore higher value when it comes time to sell. In a nutshell, it's possible to increase the value of your business in the long-term without increasing revenues.

Here are just a few of the key value drivers for a business:

  • A loyal and diverse customer base with documented history of sales
  • An engaged management team, secured with contracts and incentives
  • Protection from foreign currency exposure
  • A formalized business plan
  • Strong internal controls
  • Marketing ability and a sales team

Without going into too much detail, here's a quick rundown of the steps we will take to identify your value drivers and leverage them into the future. First, we prepare an initial, complete valuation of your business. Next, we identify the aspects of your valuation that could be positively affected with certain strategic actions by the owner. Then we prepare a step-by-step action plan to help you enhance the value drivers. Lastly, our team will follow up and support you through the implementation of your action plan.

For example:

Assume your company has after tax earnings of $200,000 per year, and a valuation exercise determines that an appropriate capitalization rate for the business is 20%. This means your business is likely worth approximately $1 million ($200k / .20).

The capitalization rate is based on the risk of not achieving this earning stream into the future. So if you could reduce the risk and your capitalization rate by just 2% than the business would be worth over $1.1 million ($200,000 / .18). If you spend $10,000 to effect the necessary changes, you have increased the value of your business by 10% and achieved a 10x return on investment.

 

Visit our Valuation & Litigation Support team page to get in touch with me or another MRSB advisor who can help you move your business toward greater value.