For most business owners, their business is their most valuable asset. And to make decisions about that asset’s future, one can’t simply guess what it’s worth. Fortunately, nobody has to — that’s where partner David Harper and his team of forensic accountants come in.
Knowing what your business is worth can help clarify both your next steps and your long-term strategic plans. We spoke with David about his specialization, what kinds of value the process can add to your business and how to recognize a high-quality practitioner.
What is business valuation?
David Harper: Business valuation is the process of determining the economic value of a business by assessing its assets and debts, its financial performance, market conditions and the potential for future growth. A business might pursue a valuation in advance of a buyout, for gift or estate tax purposes, as part of litigation, or for business planning purposes. It’s both quantitative and qualitative.
There are four main components that we look at when assessing business value specifically related to helping business owners plan and position their company for sale.
• Financial drivers: These are straightforward indicators such as top-line revenue, cash flow consistency, net profit margins and overall growth trends. We look at the overall financial health of a business, including how well it keeps up its financial records.
• Your customers: This is largely about concentration. If you only have a handful of customers, or if you rely on one-time, nonrecurring customers, you’re not going to be worth as much as a business with a well-diversified and longstanding customer base. We also look at scalability — how fast your customer base can grow with the right tools.
• Your team: Your company’s culture matters when it comes to valuation. A team that’s well aligned and able to function well on its own is far more valuable than one that’s siloed or that overly relies on one owner/manager.
• Your market strategy: We’re all subject to what’s going on in the market right now. When you understand your niche, your growth potential, and your overall competitive advantages, you’re in the best position to maximize the value of your business.
How often should a business undertake the valuation process?
DH: Regular valuations are extremely beneficial. Just like you wouldn’t go for a long period of time without checking your 401k, you would want to know the value of what is likely your most valuable asset on a regular basis. Once you have an established baseline value, future periodic updates to the valuation take far less time.
Think of it like a medical checkup. Sometimes you go in for more extensive blood work, analysis or treatment; other times, it’s more of a high-level assessment.
What makes a good business valuation team?
DH: A lot of it comes down to experience — familiarity with the relevant industry, having your finger on the pulse for what’s going on in the market, and understanding of the current deals and transactions in the marketplace. Also, a valuation firm that offers a full suite of services is a major plus. We have specialized expertise across many service lines and industries throughout our firm – resources we can rely on during the valuation process.
Our team has been involved in valuing hundreds of businesses over the last 15 years. With our vast experience in various fields and an expansive network of accounting professionals, we are able to help business owners in any industry.
What motivates you in your work?
DH: I get great satisfaction knowing we are helping business owners grow their companies to maximize value. Knowing that we have a hand in walking with business owners throughout the lifecycle of their business, and through a successful ownership transition and beyond – that’s very fulfilling for me.
We’re also currently expanding our forensic accounting and business valuation teams, which allows me to serve as a mentor or coach to other team members as we grow. Being able to offer guidance and help train future leaders in this profession has also been very rewarding for me.