Building Business Value
One of the secrets to having a successful business is having a comprehensive approach to its operation and planning. That means having a good handle on each of the three areas shown in my triangle graphic that follows.
As you can see, ‘People” are the foundation. Of course, people (the right ones) are also essential in each of the other areas. My specialty is helping you identify, develop and retain those most talented people that can grow your business so you can actually own it, rather than it owning you.
Another critical area that I often see neglected is that of strategic financial knowledge about ones business. Although I do discuss finance with my clients, it is not my area of specialization. It is one of the three areas of critical importance to business success. Accordingly, I have identified and established a professional relationship with Michael Gilburd who is a nationally recognized and highly experienced expert in this field. He has my unqualified endorsement. You have my assurance that this is a man who knows how to help you in financial matters.
‘Getting it right’ in each of these three areas can, and will save you wasted YEARS, a great deal of MONEY and enormous FRUSTRATION!
The Blueprint for Building Value ™
A Comprehensive ValuCorp™ Report Combining:
● Business Valuation ● Financial Analysis Report
● Capital Markets Assessment
For Use In:
- Selling a Business or Obtaining Debt or Equity Financing
- Growing the Value of a Business by Understanding Financial
Strengths & Weaknesses
- Comparing Growth Paths For a Business
Introduction
The Blueprint for Building Value™ will quantify the financial value of your business, analyze your business, interpret your vision, and effectively communicate this information to key stakeholders. This tool will improve business performance and heighten the degree of confidence to make the best capital markets decision.
The decision may be to sell the business, finance the business, raise capital, grow or cultivate the business, create an ESOP, insure the business or its Key People, or develop a comprehensive estate or gift tax plan, etc.
This insightful tool identifies and measures the Company’s strengths and weaknesses − which if properly acted upon will increase the business’s value.
- The Blueprint for Building Value™ is a comprehensive report of a
substantive analysis of your business including its financial valuation,
operational and structural aspects, and capital markets alternatives.
- The Blueprint for Building Value’s Fact Finder is designed to
accumulate and put in one place the most critical business information, in
a streamlined no-nonsense fashion.
- The benefits that the Blueprint for Building Value ™ brings are many
(including but not limited to the following):
- For the Business owner – a step by step guide for him or her to
accumulate critical corporate information about almost every aspect of
the business and in turn be used to efficiently communicate the data to
the Company’s stakeholders and professional advisors. This reduces
communication inefficiencies and in turn reduces the cost of
professional advisors’ services. It provides a benchmark financial value
that can be used as a baseline value to measure the effect on value
when improvements are implemented.
- For the advisor − a guide for him or her to highlight the germane issues (good and bad) that the company possesses − including but not limited to: valuation enhancement, management best practice, organizational and legal structuring and various financial structuring areas.
- For the Business owner – a step by step guide for him or her to
accumulate critical corporate information about almost every aspect of
the business and in turn be used to efficiently communicate the data to
the Company’s stakeholders and professional advisors. This reduces
communication inefficiencies and in turn reduces the cost of
professional advisors’ services. It provides a benchmark financial value
that can be used as a baseline value to measure the effect on value
when improvements are implemented.
Section 1 – Business Valuation
The first step of a prudent Business Owner is to know the business’ fair market value.
The Blueprint for Building Value’s Valuation is an independent, unbiased calculation of the value of a business or a business interest. The valuation estimates the complex economic benefits from combining a group of physical assets with a group of intangible assets such as patents, trademarks, copyrights, employment agreements, securities, and goodwill. The valuation provides a benchmark that can be used by the owner to compare against as improvements to the business are implemented.
Our Calculation of Value includes but is not limited to:
- Business valuation principles and theory,
- Financial statement analysis,
- Approaches and methods necessary to determine value,
and - Industry and economic conditions.
For example:
Section 2 – Financial Analysis Report
The second step is creating an understanding of the financial strengths and weaknesses, a section most valuable to a prudent business owner:
- Financial analysis helps in assessing your Company’s financial performance over
time. Past sales and earnings, while not a guarantee of future performance, can
provide an indication of future growth potential and can put the Company’s
current performance into a historical context. For example, a company with
steadily rising sales and earnings is worth more than one with little or no growth.
- Trends and key factors impact results, and comparing financial performance and
financial statement ratios with available industry performance measures also
provides an indication of the attainability of future results.
- Ratio analysis provides a relationship among financial statement accounts that indicates trends for your Company. These indications of overall probability of future success or failure often influence premiums and discounts while measuring and monitoring financial performance.
This section analyzes your Company’s financial performance relative to itself and relative to the industry in which the Company operates.
For example:
This section includes an integrated set of Financial Projections using an “other comprehensive basis of accounting” (OCBOA), including Income Statements, Balance Sheets and Cash Flows.
Section 3 – Capital Markets Assessment
The third step of a prudent Business Owner is to understand the Capital
Markets Alternatives that are available and appropriate.
The Capital Markets Assessment provides the Business Owner with alternatives regarding pricing, timing and probability of success.
Our CMA is part of a proven Deal Screening Process that scores and rates your business as a financing candidate. Our CMA accomplishes the following for you:
- Deal rating and score computation to assess the funding potential and
its cost to your business, as documented in our CMA.
- Preliminary due diligence to ensure that many of the corporate papers
are in order. This effort minimizes the Deal Structure Process time.
- Deal presentation material to support the preparation required for discussions with funding sources.Management of consulting services to enhance your proposal to improve deal score and rating.
Our Capital Markets Analysis is built on a Multipoint Evaluation Process similar to the system used by FICO for credit evaluation. We then apply it to a scoring system similar to Moody’s Rating System.
Deal Ratings
All deals receive a score, which is aligned to how a financier assesses acceptable minimum scores to finance a deal. The CMA scores all sources of capital pools under the same system to remove any subjectivity.
If you have a B Grade Deal and are unwilling to take the necessary steps to upgrade to a higher score, then you should lower your expectations about completing a ransaction, because there are fewer capital sources willing to accept B Grade Deals. Typically, if a B Grade Deal is accepted, the costs are much higher than an A Grade Deal. If your rating is below a B- Grade Deal and you’re not willing to do what is necessary to move up to at least a B- Grade, then it is highly unlikely you will complete your transaction.
Scoring Criteria
A summary of the ten areas comprising the scoring criteria is shown in the following table along with the maximum score for each and the actual score a client company achieved.
For Example:
The specific category values and constituent component values are given in the CMA along with a more detailed definition of how the score value is derived.
Deal Ratings – All companies (deals) receive a score, and each financier determines the minimum scores they will accept to finance a deal. ValuCorp scores all sources of capital pools under the same updated system to remove any subjectivity.
Alternate Financing
Once you’ve completed our Deal Screening Process, you can investigate several alternate financing opportunities. Please note that deals are structured using one or multiples of various available instruments to maximize returns at the lowest possible risk to all involved parties.
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Contact me to arrange a meeting with my Professional Colleague who is a Financial Expert in this field. This initial consultation is your opportunity to explore the winning potential of a professionally prepared proposal. As always, it is without obligation.
Rock Duffy
Michael Gilburd, ASA, MST, CPA
Accredited Senior Appraiser and trusted member
of the American Society of Appraisers
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