Use a great template to assess whether your company worth increased
If one of your future exit strategies includes the option of selling to a third party, then today you want to be wearing an acquirer’s glasses and assessing whether you’re building the enterprise value, or company worth, that they will be evaluating.
Too often, executives confuse increasing their revenue and profit with increasing their company worth and this can be a critical mistake. What they don’t realize is revenue and profit are subsets of company worth.
Let’s look at two companies. Both serve in the same industry, both deliver $50M of revenue and $10M of EBITDA. Company A sells to a third party for $60M but Company B sells to a third party for $38M. How can this be possible given they are similar in terms of industry served and revenue and profit.
The difference is Company A focused on building company worth years prior to starting the sale process and Company B only focused over the years on revenue and profit. Company A has no customer concentration issues. Company B has a single customer that is 45% of annual revenue. The owner of Company A can take a 2-week vacation a few times a year and never have to check in with the office. Company B owner can’t take a meaningful vacation and if he does, he’s in daily contact with his office because his team needs him to help make decisions. Company A has high predictability of their future revenues, Company B does not.
As you can see here, one owner had a plan for building company worth and one did not. Avoid being the owner of Company B. Attached (Company Worth Template here) is a helpful template for thinking about your company worth.
This template identifies the various potential company worth enablers in the eyes of a future potential acquirer. There are certainly others specific to some industries, but this list is an excellent starting point. The first column, “Company Worth Enablers” identifies what could be important to a future acquire. Do you know which ones will be important to them? As you identify these, place an “A” in the “Importance to Acquirer” column.
Then there is a column titled “Our Status”. This means your company and team’s status to impress an acquirer in this worth enabler. It’s Green if you’d impress them today, yellow if you wouldn’t but it won’t take much to get it to Green and it’s a Red if you won’t impress them today and you have much work to do to improve it. Then where it’s a “Yellow” or “Red” in your status column and it’s an “A” priority to a potential acquirer, then it becomes an “A” level priority for you to address in your strategic plan.
This template can help you facilitate great strategic thinking and dialog with key members of your team. Once you’ve identified what your future acquirer will place value on, you can use this template to help manage and monitor your progress to one day impress them. Did you make progress in the year now ending and where do you want to focus to make improvements in the new year ahead? And, if you’re wondering how to find out what is important to potential acquirers in your industry, give us a call and we can help you answer that important question.
