Identify Value with an Insight into Your Business
For many of our clients, Step 3 is an exciting time because it is when we present our analysis of their Business Insights Report. The business Insights report is a comprehensive document (approximately 55 pages) providing a thorough analysis and diagnosis of the business. In it, we analyse both the financial and non-financial aspects of the business to determine the current state of exit readiness for the business and the potential upside to be realised if the business (and the owners) are prepared for exit.
You can see an example of what a report looks like in our book, ‘Enjoy It’, where we share an end-to-end case study of the 21 Steps. You can get your copy here.
It’s a more thorough and formal assessment of business value and key value drivers conducted through a ‘buyer’s lens’. This involves a thorough analysis of your business; financial, operational, structure, cashflow, growth prospects and risks – identifying gaps or barriers that may prevent you from maximising your return. The process that we follow is similar to the due diligence process that a buyer will undertake as part of their evaluation of your business. This may leave business owners feeling like they have just been worked over, but they always say they feel motivated to implement the plan once they see the difference that it will make to the valuation in anticipation of a formal due diligence process when the time comes. This investment in your business will provide a valuable pathway to a successful exit transition.
Most owners have their magic number. This is the number that they would like to sell their business for. A part of the report is dedicated towards preparing a valuation from a buyers perspective and then identifying the gap between the current valuation and the magic number. When we present the report, we have the conversation about the investment and risk profile required to bridge the gap in the timeframe required.
This may be a tough conversation as expectations often need to be adjusted. It’s not unusual for business owners to disagree with the valuation because it is not what they would like it to be or what they feel the business ‘owes’ them after pouring their heart and soul into it over their working life.
When the business is prepared for exit it doesn’t mean that the owners have to exit immediately. It’s not uncommon for the owners to renew their passion for the business which is now exit ready because it is more enjoyable to run and generates higher profits.
The valuation of your business today is not always going to be the maximum value that you can reach, and it is important to start the process as early as possible to plan for your eventual exit. The graph below shows the potential growth in business value when implementing the 21-step process over a period of 12-18 months.
By way of summary, the Business Insights report includes:
- Analysis of your financial performance.
- Analysis of your non-financial performance.
- Clarity on how you compare to industry benchmarks.
- Identification of any risks and profit gap within your business.
- A current valuation and potential upside if the business was prepared for exit.
- A detailed implementation plan (using the 21 Steps) that identifies priorities to prepare the business for exit.
- A workshop to map out the specific next steps and timeframes for you to start implementing your plan.
In the next article in this series we will start the process of protecting the value that you have already built.