Sunday, February 22, 2015

Business Valuation

What is the business is worth?

Corporate valuation is not a perfect science.  Indeed, value is perception.  Nevertheless, valuation exercises are done with the objective of maximizing the growth of shareholder wealth.  Here are a few reasons to ensure you optimize business value:

One of the benefits of corporate valuation exercises is to determine how best to raise capital.  The best financial solution is one that minimizes the cost of capital or increases the value of equity. The ensuing financial structure can provide for expansion purposes, mergers, acquisitions, divestitures and restructuring.  For private companies, valuation exercises are also important for estate and tax planning.

While a valuation exercise may help in determining what the best financial strategy to adopt is, it will only give an indication of what the value of the company is given the economic, financial and market conditions at that point in time.  For a publicly traded company, the value of equity is also dependent on several factors, including but not limited to, the liquidity of the stock, the control structure and who the target buyer is.  For a private company, other factors will include family employment, additional benefits, the control over the bonus and dividend policy and the mix of asset ownership.

There are several valuation methods.  Asset valuation is a good starting point beginning with book value and then moving on to replacement value, market value and in the case of a company that is no longer a going concern, liquidation value.  Assessing the market value of the company as a whole requires access to market data bases whereby a complete comparison of similar companies is done through ratio analysis and industry rules of thumb.  The most straight forward, effective and efficient method is the earnings approach, either using a Capitalized Cash Flow or a Discounted Cash Flow (DCF) method whereby the present value of future cash flows is calculated.
This method uncovers the intrinsic value of companies, particularly in the case of highly cyclical situations, avoids the issues of interest rate environment because the rates used in the model are long term rates, and provides a risk adjusted appraisal as it uses expected rates of return.  In short, it is a sound quantitative method on which to base discussions around financial strategic planning.

The bottom line… know your bottom line and what your business is worth. Fiscal planning will be a lot stronger.

For help with the project I recommend you contact:

Federica Nazzani,

Capital Assist Valuation Inc.
Cell: 226-347-8100

Sunday, February 15, 2015

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?

Sunday, February 8, 2015

Business Management

Managing Your Time

Time is one of the resources business managers have that is scarce, cannot be replaced once spent, and it cannot be borrowed or purchased. Here are a few tips to help manage it.

1. Prioritize Activity
To help you determine what needs to be done immediately and what can be tackled later, ask yourself questions such as: "How much time do I have to make this decision, contact this person, or complete this assignment?"

2. Take time. Before making calls take 5 minutes to determine what results you expect to attain and review results after to see if the goal was achieved.

3. Calls and email. Try not answering the phone every time it rings or reading an email just because it shows up. Few issues in business require an instant answer and you will be more efficient if you schedule time to return calls and email inquiries.

4. Evaluate your capacity for stress 
Start with the most worrisome task; this will reduce your anxiety and stress levels for the next tasks and in many cases improve your performance. Take breaks if you feel you are about to overload. Even a short period away from the desk is effective.

5. Plan the unexpected. It is inevitable that the unexpected will occur so leave open time in the morning and afternoon schedule to deal with “fires”.

6. Plan Strategic time. Plan ahead for weekly, monthly, and quarterly business reviews. It is important to continuously review and understand the business issues and if you fail to block off time some emergency may pre-empt the time and your plan will be postponed or eliminated.

7. Downtime. Casual time over lunch can be useful for strengthening relations with employees, customers and suppliers. Use that time judiciously.
Remember that it is difficult to get everything done and best results are achieved from those priority activities that are the focus of the business and future growth.

Thanks for allowing me to share your time with these tips.

Monday, February 2, 2015

Business Management

Managing Change in Your Business

Managing change in an organization is crucial if the business is to move forward with adapting any new structure or shift in business focus needed to realize its goals of growth and profit improvement.
Here are a few thoughts on areas management needs to focus on to implement and manage change in the organization.

1. Responsibility. 
Clearly management of change rests at the senior levels of the organization. Employees have the responsibility to accept and help implement changes which need to be communicated clearly so employees understand the purpose and how it impacts on their individual roles.

2. Involvement. 
Management should involve employees in the changes – it is never a good idea to just impose change from the top. Midlevel and frontline employees can make or break the change initiative,

3. Plan.
The organization must develop a plan that is achievable if management is going to be credible. The plan should set out stages for implementing change in phases that are not only achievable but measureable.

4. Communicate
This stage cannot be overly stressed. Clear communication of objectives, involvement of people, at the early stages, and enabling of employees will facilitate involvement and buy in for the company.

5. Assess and Adapt
 Many organizations involved in transformation efforts fail to measure their success before moving on. Leaders are so eager to claim victory that they don’t take the time to find out what’s working and what’s not, and to adjust their next steps accordingly. This failure to follow through results in inconsistency and deprives the organization of needed information about how to support the process of change throughout its life cycle.

It is obvious to most business owners that people matter. Sometimes however the organization gets lost in plans and processes rather than facing the difficult and more important people issues. Making the initial steps to involve the entire organization starting at the top will help achieve success.
I’m always happy to hear your thoughts.