Business Valuation

September 10, 2015

Whether it is your business and you are thinking of an exit or on the buy side, knowing how much a business is worth is critically important. 

 

We at CFO Network are deeply experienced at valuing business. We have valued more than $4 billion worth of businesses, including valuations for some of the world's most respected companies. For us it is not just plugging in numbers into some formulas and writing up a report. We understand it is critical to comprehend the context around the valuation in order to select the right approach and apply the right assumptions. And yet we are not so proud of our services that we charge an arm and a leg. 

 

We are experts in business, with over a decade of experience working in the trenches with owners and executives of businesses of all sizes, in all industries. We pride ourselves in truly understanding the business we are valuing. We have seen all of the dynamics of buying and selling, but most importantly, the real world of running a business.

 

If you are selling your business:

We know the stakes. In many cases this transaction represents the sum total of a majority of your life's work; all the blood, sweat and tears that have gone into it. We know the importance of negotiating from a position of strength.  

  • Knowledge is power. The key is to understand what drives value in your business. We are experts in understanding the value drivers. We know how to value them and how to articulate them to buyers. 

  • How you conduct the process matters. Transparency. Clean accounting. Solid trends. The other side will have their own ideas about what your business is worth. Be prepared to address their arguments and assumptions.  

You know your business better than anyone. With CFO Network on your side we can understand the sources of value in your business and make sure you best articulate it so you maximize what it is worth.

 

If you are buying a business:

There is an ancient phrase "caveat emptor". It is latin for "Let the Buyer Beware". There is a lot of research out there proving that a majority of acquisitions are subsequently deemed unsuccessful. By most measures that means you'd have been better off taking your capital and putting it in the stock market, or investing it elsewhere. Why is that? 

 

Unlike other big purchases like cars and houses, buying a business is a complex mixture of tangible and intangible assets. How do you separate out the value of the business owner himself? What is the value of the labor force, the company's reputation with suppliers or customer loyalty? How do you assess the degree to which the company has maintained investment in the assets that will be needed to produce future revenue? Looking at the underlying accounting, how do you have reasonable assurance that the numbers are solid? What are the ways that profitability can be goosed? Are there any lurking risks of liabilities that are not disclosed? There are literally a myriad of things that need to be evaluated in the buying process.

 

Many times high valuation expectations can be challenging to making a deal make sense. Buyers can engage in wishful thinking in terms of assumptions about the future. At Intel Capital they called this "deal fever". Many times the professionals like investment bankers, lawyers and accountants have vested interests in the deal getting done. So who will be at your side helping make sure you are making the best decision?

 

CFO Network traces its roots to serving in that critical role. Allen Engstrom was a valuation specialist for Intel Capital on its core M&A team. His role was to make sure the managers were making the best use of Intel shareholder capital. He saw all of these dynamics. He traced back the successful deals to things that were done early during the process. Things like properly understanding what needs to be done in the future to capture the value assumed, identifying the key risk factors and taking steps to mitigate them. He also understood the impact when deals were done that turned out to be unsuccessful. 

 

One of the keys to success was creating a forward looking financial plan that linked back to the valuation. What were the requirements necessary in order to justify the price paid for the business?  We are talkign things like growth rates and margins. Creating a proforma discounted cash flow valuation model is critical. This is the critical tool to identify the impact of both downside risks and upside synergies. And, most importantly, it is the basis for the plan after the deal is done. It becomes your budget. It is the tool you use to manage the new business.

 

CFO Network is the best at developing and facilitating this capability. We specialize in helping you truly understand what the business is worth based on what you are going to do with it. And we stay with the deal to help you manage to it. It is how Intel managed its deals. It is so straight forward, and yet we still have not found any practitioner doing it this way.  

Contact us to discuss the value of your business. We are the experts at helping you make the best decision. There's simply too much at stake to not make the call.  

 

 

 

 

 

 

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