Business Transitions – Valuation vs. Evaluation


The only true measure of the value of your business is what a third party buyer will pay you for it.

How will you determine the value of the business?

Books, articles, presentations, courses and careers have been based on devising ways to determine the value of a business. There are many well trained professionals available to review, analyze and dissect your business, evaluate the marketplace and give you a dollar figure on what they think the business is worth. In cases where there are shareholder disputes, marital conflict at the owner level, or for estate purposes, these valuations will be extremely useful.

An important measure for you as the owner is whether you have done everything you could have done to improve the value to a prospective buyer. Long before a prospective buyer approaches you, you should have the answers to the following questions. If you can’t answer them you are probably not going to get the price you expect.

  1. Does your company have a history of sustained growth at or above the industry’s rate?
  2. How large is your potential market?
  3. Do you have a dominant market share or plans to attain a dominant share?
  4. Do you have recurring revenue or do you have to recreate your customers every month?
  5. Have you documented the capital, legal or market barriers to entry?
  6. Is your product or service differentiated?
  7. How strong is your brand compared to your competition?
  8. Can you show net and gross margin above your industry norm?
  9. Do you have a diversified customer base or are all your eggs in one basket?
  10. Can an outsider quickly and efficiently learn about your company?
  11. Do you have financial systems and processes in place such as financial statements, operating reports, audits and tax?
  12. Do you have a sales and marketing process… not just an ace sales or marketing person?
  13. Can your operations consistently deliver on your promises to the marketplace?
  14. Do you have a process for measuring customer satisfaction?
  15. Do you have a high functioning senior management team in place or is the company overly dependent on the business owner?
  16. Can you find, hire and retain the best of the best when you need to?
  17. Is your legal house in order?
  18. Do you have a process to capture innovation at all levels in your organization? MI

If you find you are unable to answer these questions or don’t like your answers, don’t despair. What you need to do is to devise a strategy, using your existing knowledge of the business as a baseline, and build up the data you need.

It is essential to conduct a systematic review of the business in order to develop the answers to these questions. It is also important very early in the process to align yourself with a professional trained and experienced in preparing businesses and their owners for the transition, and managing the negotiations on their behalf. WelchGroup Consulting works closely with clients to develop these strategies and build the knowledge database through its trademarked CoreValue Software and consulting methodology CHAIRMAN’s VIEW.

Utilizing Chairman’s View, you will;

  • Perform a health check on your business by looking at 18 key drivers and assessing your readiness and value
  • Address weaknesses and identify new opportunities to grow and maximize the value of your business
  • Manage your time and team effectively
  • Be in a position to plan your transition
  • Focus on action plans that address the “causes” of the fires you have been putting out so you are not repeating them again next month.

Selling a business is like selling your home – it is important that it is staged allowing the Buyer to see its full potential. Well before putting the business up for sale, the seller can do a lot to influence the eventual outcome and final valuation.

If you have any questions or would like to have a discussion of where you and your company are in terms of readiness for a business transition, please contact us. Details are below.

WelchGroup Consulting helps entrepreneurs to build better businesses. We are a full-service management consulting firm that delivers outstanding results and value. We help our clients to achieve their objectives quickly and economically, delivering practical consulting services. We work with clients to help them build organizations of higher value as well as providing mergers and acquisitions (M&A) advisory services.

Candace Enman, CA, CPA is the President of WelchGroup Consulting and has more than 15 years of financial and management experience. She has played key roles in all aspects of growing a business in both the private and not-for-profit sectors. Candace believes that successful businesses do more than keep score, they build value from the ground up, and she brings that philosophy to all of her engagements. Candace Enman| President | W: 613-236-9191 | [email protected]

Stephan May, MBA is the Managing Director of WelchGroup Consulting. He brings years of experience in M&A, debt capital, private equity, advisory and restructuring services. Stephan works with companies to maximize their value and ensure a smooth transition process, whether through buying or selling your company, financing or restructuring. Stephan May | Managing Director | W: 613-236-9191 | C: 613-724-9787 SMAY@W-GROUP.

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