The Four Intangibles That Can Increase Valuations
By Bruce Newman, President, Protegrity Advisors
I recently had the privilege of joining a panel discussion on business valuations hosted by Dale Carnegie at their headquarters in Hauppauge. Moderated by Michael Frenda from Dale Carnegie, the panel included Joe Campolo, Managing Partner – Campolo Middleton & McCormick, Don Schatz, President – Dale Carnegie Long Island, and John Shillingsford, Partner – AVZ Certified Public Accountants, and myself.
What was great about the discussion is that we went beyond the typical EBITDA calculation in determining a company's value and explored some other key and often overlooked intangibles. The panel termed these the "Four P's" of creating additional value – namely people, privacy, professionalism, and preparation.
The first are your people. Panelists commented that a business with too much of a dependency on its founder for day-to-day operations will be viewed by buyers as having more risk. Building a great team isn't easy, but companies with solid management often achieve better valuations. Remember, cultivating good employees takes time and money, and buyers often see acquisitions as great way to find talent. That talent is worth something. Conversely, having the company too dependent on its founder will detract from its value.
Next is privacy. The panel agreed that one of the surest ways to undermine the process of selling your business is to "spread the word" that your business is for sale. Aside from word potentially spreading back to employees and customers, a business owner's initial representations to a prospective buyer can become problematic in later discussions on valuation. Panelists suggested developing a communication strategy in advance of going to market and working through a trusted advisor to provide some degree of anonymity in the early stages of assessing potential buyers.
Professionalism comes into play when presenting your business to perspective buyers and their advisors. Buyers follow a well-established protocol in evaluating businesses from both a financial and industry perspective. The panelists agreed that presenting the company in a well-organized and professional manner fosters a higher level of overall confidence in buyers that can help enormously in later negotiations on valuation.
Preparation essentially covers all of the above. Again, the panel emphasized the need to be prepared and that working with experienced professionals is the surest way to ensure an owner receives the best possible price for their business.
If you're considering selling your business – today or in the years to come – it's never too early to begin preparing. Obtaining the maximum possible sales price depends on it. Please feel free to reach out to me at firstname.lastname@example.org to discuss your particular situation.