3 Valuation Metrics to Help You Exit Your Business on Top
When Ken, a successful Colorado business owner, decided to exit his company he wasn’t sure what the options were, nor where to get direction. As he started to make these life-altering decisions, he and his wife were operating out of fear. They had a lot of unanswered questions. The biggest being “What’s the actual value of our business?” They tried some online options that based their worth on financials only. The great team and culture he had built and the extensively documented procedures didn’t factor into the final dollar amount.
Thus, Ken ended up leaving a lot of money on the table.
Get What You’re Worth
If you are planning to exit your business, don’t let Ken’s scenario happen to you. Instead, make sure to learn the many factors that go into the valuation of your company. Doing the grunt work up front will get you the results you desire later.
First of all, there are many steps you can take to prepare for a transition or sale. Most important is a business valuation. An accurate analysis of your company’s worth will help you determine what steps are needed to reach financial security.
With a professional business valuation, you can expect a review and assessment in a wide range of business elements. The top three common criteria, include:
- Financials – A professional will start with your base metrics. It’ll include a review of your company and industry data, historical balance sheet, and income statement analysis. Make sure they consider your financial ratios and trend lines too.
- Comparisons – Next, there will be an assessment of companies similar to yours. They may be publicly traded or privately held with the same number of years in business, market penetration, and geographic location. Some professional valuators, like Quist, include merger and acquisition data and proprietary data acquired over 35 years for the current multiples of revenue and EBITDA.
- Forward Metrics – Lastly, there will be a deep dive into your forward metrics such as revenue growth and projected cash flow streams along with a risk-adjusted discount rate.
Understanding the significance of these metrics can be overwhelming. So, make sure you work with an experienced team of analysts. Together, they can help you bridge real-world realities with advanced valuation theory. It’s their job to break the data down into easy-to-understand information. Use the information they provide to make better-informed decisions about your exit.
Finally, Know Your Exit Options
In a previous article, we covered the Eight Ways to Exit Your Company. Here’s a broad outline:
- Transfer the company to a family member
- Sell the business to one or more key employees
- Employee Stock Ownership Plan (ESOP)
- Prep the business to be sold to one or more co-owners
- Cultivate an outside third party to buy
- Engage in an Initial Public Offering (IPO)
- Retain ownership but become a passive owner
Read about each exit strategy in detail here.
Make decisions based on facts, not fear. After learning about all eight exit strategies, you’ll see advantages and disadvantages to each. But, not all will be appropriate for you. Most will rule themselves out based on your business valuation.
In conclusion, work with a skilled advisor in exit planning to outline each option in detail. Then, compare the options to your company value. From there you can map out the most beneficial exit path for you and your family without fear of the unknown. The best way to achieve peace of mind is by knowing your worth.
Ready to start your exit strategy with a business valuation? Colorado-based Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify the next steps needed to assess the value of your company.
Schedule your free 30-minute consultation here.