Owner To Owner Podcast

Mike Williams from Exit Value Advisors on the art & science of valuing a business

Episode Summary

Business valuations are simply an opinion of value. It's a dark art with a large financial impact on small business owners. In this episode we explain the process and major influences on the business value.

Episode Notes

@MikeWilliams is #CEO of @ExitValueAdvisors and we talk about how to #value a #smallbusiness. He's valued thousands in his time! Valuations are only opinions, they are highly contentious and are part art and part science. We try to break the topic down to help #owners better understand when they should get a valuation and how to interpret the result.  

 Our discussion covers a lot of ground including;

• Mike's core philosophy - information is power if you know what your business is worth, not just when you're selling but along the way
• the typical questions that can spark the need for a valuation;
  • " What's my business worth?"
  • " Someone has offered me this. Should I take it?"
• the shock owners experience when they realise "Oh, right. Okay, it's not worth what I thought it was. We better do a business plan."
• why valuations are actually a tool to help people make decisions
• the difference between discretionary non-discretionary valuations
• how valuation is one of the few areas in business where you combine the profitability of the business with the balance sheet of the business and some measure of risk
• why Banks rarely look for valuations anymore, they used to - for small, micro-business, they look at the other assets
• what's a #multipleof earnings and why the typical range is between 1 and 5
• what are the characteristics that determnine your Multiple - size, margins, systems (ie the extent to which the business can run independent of the owner)
• how do you assess if a business is commercially viable (i.e. does it generate sufficient profit or cash flow to pay the owner of market wage, are all of the other transactions that going on in the business at arm's length and is their rent being paid on an office or a facility at market rates?)
• the importance of using #marketwages in a valuation
• why really highly valuable businesses can articulate a real key vision and mission, and say why customers or clients buy off them
• the value and power of getting that regular perspective through a valuation on your business - it's an external perspective and a prompt tp to say "Okay, I can work on those sorts of things. That's more concrete."
• why valuations are simply a  well (or not) laid out opinion - they certainly are not gospel
• how tax-driven accounting reports need to be adjusted to better reflect the real return or profit or surplus in a business 
• the lack of quality data on past valuations 
• Mike's parting advice is to always get another opinion other than your own