Benchmark Your Business with a Valuation—Before You Plan to Sell
You’ve dedicated years, maybe decades of your life to your business.
If you’ve been following me for a while now, I hope you are in the habit of watching your financials like a hawk (If not, please reach out to our Finance Team for a Help First Call to fix this.)
So let’s say you monitor and optimize for revenue, profit, and cash flow already. It’s a great start, but it isn’t enough.
One way or another, you won’t run this business forever. And if you’re smart, you’ll treat your business like an asset that you can use to create wealth for yourself, your family, and future generations to come.
But that begs the question: What is your company worth?
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You’ve probably considered selling your business at some point:
- To a family member
- To a key employee or all employees (ESOP)
- To a competitor
- To a private equity firm
Most entrepreneurs think about it like this: in X years, I’ll be done with this company and ready to sell.
And when that time is near, they take steps to determine the value of their company.
That framing is almost completely backwards.
What entrepreneurs should be doing looks more like this:
- Figure out your personal number for retirement
- Figure out the value of the business today
- Determine if the business can help you hit your number—realistically
- Monitor the value of the business on a regular basis
- Consider selling the business anytime its value helps you achieve your number
I know, right?
The most successful M&A transactions I’ve been part of, like Mission Cloud’s recent sale to CDW, were the product of careful planning and a clear strategy.
Selling a business is less about the time in your life that’s right and more about the right timing for the transaction.
If you don’t know what the business is worth, you can’t build any kind of strategy.
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We’ve partnered up with Scalar to bring an SMB-sized valuation offering to our clients. Scalar has deep experience in performing valuations, calculating risk, and uncovering business opportunities to help companies plan for success.
Their Valuation Consulting delivers a premium experience at an affordable price point (critical for the companies we work with).
Next week, we’re partnering with the Scalar team to discuss valuation, including common misconceptions about valuation, why timing matters in the process, and how to build long-term enterprise value in your business.
You can watch our latest webinar with Scalar here.
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While it would be great if you worked with Scalar to value your business, it’s not what I care most about.
What I care about is that you get this information somehow, because it’s important.
A formal valuation of your business gives you insight into what the market is currently willing to pay for your company.
You want to know:
- What similar companies are selling for
- What valuation methods might be used in your industry
- What the realistic ranges could be if you sold your business today
- What the market demand is currently for companies in your space
At Crews & co., we have a fiduciary duty to accurately report shareholder value to the partners in our business.
But that’s not the only reason I get a valuation. Yes, I recently went through the process for my own company. It was revealing; the methods they used to arrive at a value were not what I anticipated.
From this report, I was able to tweak our theory for how we want to grow the business. I have a sense of when might be a good time to exit, if we decide to do so. And I know when our next valuation should be to see how we are stacking up against our goals.
We have scorecards for monitoring key activities that drive the business.
It’s imperative to have a way to measure the long-term results of all that activity as well.
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If you will exit your company at some point, you should have a current valuation of the business to inform your planning.
And in my opinion, everyone should have an exit strategy that brings a return on their investment. More than retiring or closing your doors.
Your business is an asset, and a valuation is the starting point for understanding what it’s worth.
If you have any questions about valuation, or how Crews & co. can help you grow the value of your company, reach out.
