This week’s blog is written by Federica Nazzani, President, Capital Assist (Valuation) Inc. The blog provides an outline of factors to consider in valuating your business. I hope you find the outline of interest.

This is the first part of a two part article on the topic.


Making Sense of Valuation
By Federica Nazzani

Whose side are you on? 
The objective of vendors of businesses is to maximize their selling price whereas buyers will seek to minimize the price which will be paid, thus, the importance of understanding the value assessment.
The relentless question, “What is it worth?”
The simple answer is, “It is a matter of judgment” as there is no hard and fast response to the worth of a company and/or asset.  We often hear of value terms such as “fair market value”, “fair value”, “market value”, “adjusted book value”.  The significance of each of these terms will differ in the practice of business valuation.

There are some basic fundamental principles in valuation:

Price versus value
Price is determined in the open market once a business interest and/or asset is exposed for sale, strategic benefits and synergies are quantified and the parties to a transaction enter into negotiations.  Without exposure to the market, notional value would prevail based upon rates of return required by investors given economic and business conditions existing at the valuation date, but without consideration of possible purchaser synergies.  Synergies may include economies of scale, increased purchasing power or other strategic benefits to purchasers of shares and/or assets. Only when an asset or a business interest is exposed for sale that the impact on “price” of arm’s length, third party purchaser synergies can be quantified with any degree of certainty.  Therefore, the primary objective of negotiation is to transform value into the transaction price.


Value is at a point in time
A principle often overlooked by business owners is that value is determined at a specific point in time and thus, based on a set of facts together with reasonable and foreseeable forecast and business and industry risk assumptions made at the time.  As an example, a business in anticipation of a large contract or in anticipation of the completed development of a technology/asset will have a lower value as it will require a higher risk rate to the estimate of cash flow and earnings than a business with a signed contract and commercially available technology/asset, respectively.
Approaches for valuing your business will be covered next week.

Please contact Federica for more information on this important topic. She can be reached as follows:

Federica Nazzani
President
Capital Assist (Valuation) Inc.
Tel: 226.347.8100
Email: fnazzani@capitalassist.ca

Is the time right?

One of the more interesting and challenging questions as a business owner is “when should I be thinking about exiting this business? There are many factors to be considered but here are a few thoughts.

1. Business Health
Is the business operated from strong principles of strategy with a clear vision? Can that vision be expressed and understood by those who manage the business or potential buyers? If you the owner cannot clearly state the purpose or reasons that you exist don’t expect new owners to invent it for you.

2. Maximize return
In cases where management/ownership is dominated by a single individual it is important to maintain a high degree of confidentiality so that employees do not become insecure and unsure of the stability of the company or their jobs. This instability can easily be communicated to a potential new buyer and create a poor impression.

3. Need change?
Factors that may support your decision to leave can grow out of many conditions. The most common is an age derivative. A long career leading to a desire for more personal time; reap the rewards of your career. Age may not be the prime driver but longevity at the job could be creating burn out. Time to move on.
Another good time chosen is driven by a need for change. You may feel you have achieved all that can be achieved and you wish to quit while on top of the game. This may also provide a high rate of return if the business is at a high level of performance. Selling now may produce the equity needed to finance a new opportunity.

4. Exit from strength
Look for opportunities to exit from positions of strength. A well trained and competent management group may provide the opportunity to offer management buyout.  Managers may be able to pool resources to fund the buyout, you as owner may offer to finance all or part of the buyout or there may be an option to use company assets to finance the loans needed for the buyout. This is often referred to as a LMBO – Leveraged Management Buy Out. It also provides good opportunities for maintaining stability in the organization.

5. The market
The marketplace may facilitate determining the right time to exit. Poor economic conditions or competitive activity can have a huge impact on if or when you should exit. Positive conditions too might bring a competitor to the door with a buyout offer.

So the options are many but not always easy to sort through. Timing is critical, business life changes, choose wisely. These are my thoughts, care to share yours? gerry@polarisgroupmc.com

Do you have a Succession Plan

Succession planning recognizes that some jobs are the lifeblood of the organization and too critical to be left vacant or filled by any but the best qualified persons. Effectively done, succession planning is critical to mission success and creates an effective process for recognizing, developing, and retaining top leadership talent. 
 Here are some of the factors to consider for a successful plan:

1. Senior managers need to be personally involved and held accountable for growing key managers.
2. Managers need to be committed to self-development.
3. Succession planning is linked to a strategic plan and investment in the future growth of the business.
4. The company needs to have a performance system in place to measure competencies that can be used for selection and development of key potential managers.
5. A pool of talent needs to be identified early that can fill key positions for the long-term health of the business.

These are a few of the key points to consider for implementing a succession plan; succession plans address challenges such as recruitment and retention to ensure key positions are always protected in the near term and long term as well.

Good luck with your planning; let me know your thoughts: gerry@polarisgroupmc.com

Need Better Decisions?

Nobody in business has a monopoly on all the good ideas for business and an owner who does not take advantage of outside resources may not make the best decisions for the business.

It may be useful in many situations to add another perspective from a source with expertise and an objective but different point of view.
Several outside sources to consider can include:

• Associations
Some associations can provide good sources of networking to informally add insight into current activity within your community of business, including competition. You may meet peers who can be trusted to share experiences with.

• Professionals
The group of professionals that support your business including your lawyer, accountant, or banker can provide valuable advice in addressing issues in the business.

• Coaches
Independent consultants can be hired to provide expertise that compliments your experience and fills gaps in areas the business may be weak or lacking. Low cost, short term problem solving can be attained in this way.

• Your Team
Do not overlook your own management team. This can be a surprisingly good resource and they have a current view of the business operations. Don’t hesitate to ask; the response can sometimes provide quick results and involvement of the teams increases positive motivation for team.

These resources can minimize the risk of taking on decision making alone and certainly expand the horizons of problem solving. Be proactive in seeking help.

Please let me know your thoughts: gerry@polarisgroupmc.com

Need to be more productive?

Leading a business, no matter the size, requires CEO’s to manage resources including time, finances, people, and operations. There are also multiple demands for time to make decisions and develop strategies to continue growth of the business.


Here are a few tips that may help improve your own productivity:

1. Take breaks
Use periodic breaks, every 90 minutes if possible, to recharge energy and alertness levels. Step away from the desk instead of adding another coffee to get adrenalin going.

2. Limit interruptions
Identify specific times for working without interruptions. Allowing employees to engage you in new conversations is not only a distraction but also wastes the time needed to refocus on your task. This should also apply down the chain of command and the CEO should respect other manager’s time.

3. Manage your energy
Do the most important tasks when your energy level is highest. Save mundane tasks to a point in the day when your energy levels are lowest.

4. Slave to email?
Do you have to respond to email the moment it arrives? Plan your time and check mail at scheduled intervals. Use autoresponders if necessary to alert people to your schedule and offer alternatives for emergency communications.

5. Delegate
This is a prime way to manage your time. Assigning tasks to team members not only improves team play but it allows the CEO to focus on more pressing issues.

I hope these ideas help you with productivity and to focus on more of the key issues in the business.
Please let me know what you think: gerry@polarisgroupmc.com