When preparing your annual business plan, do you consider Enterprise Value?

Many of the readers of this site, like me, read CIMs or Business Plans every week.  How often do we see a company: i) properly understand its own value; and, ii) specifically plan to increase its value?

The answer is: Rarely (perhaps with the exception of tech companies that have management teams experienced in the VC world).

Every business owner that intends in the future to sell some, or all, of the business could benefit from a thorough understanding of the value of the business today and the metrics that drive the valuation.

The metrics will depend on the industry and the specific company.  They may include financial measures such as EBITDA, margin or net assets.  The metrics always include sustainable growth, which is a significant driver of any valuation.

Annual business plans should include a plan to directly improve the relevant metrics.  Failing to do so misses an opportunity to focus the entire organization on the ultimate goal of the owners.

Annual planning should also seek to remedy the issues that will limit the price received from a sale.  Such issues, for example, may include insufficient internal controls, corporate structure or personal goodwill.

HERE is a publication from Deloitte that presents an overview of many considerations in preparing a business for sale.  Personally, I find the presentation overly ambitious in scope and, therefore, some very important topics are necessarily glossed over.  Nonetheless, it is food for thought and definitely worth a read.

Posted by Scott Sinclair, Range Corporate Advisors