Home | Measuring Private Company Wealth to Gain Financial Clarity
Business Valuation: Measuring, Maximizing & Managing Your Company’s Worth
Presented by Holly Rook, ASA and Tiffani Horth, CVA, MBA, MST
Key Takeaways
- Valuation as a Strategic Tool: Annual or recurring valuations help business owners track performance, assess risk, and plan for growth or transition.
- Three Core Value Drivers: Cash flow, risk, and growth are the foundation of business valuation.
- Benchmarking & KPIs: Tracking key performance indicators helps owners compare against industry standards and themselves.
- Recurring Valuations: Provide financial clarity and help measure annual returns, similar to tracking stock performance.
- AI & Tariffs: Emerging technologies and global trade policies are influencing valuation inputs and business strategy.
- Best Practices: De-risking, improving efficiency, and preparing for setbacks are essential for maximizing value.
- Transferable Value: Owners should focus on building enterprise goodwill and updating legal agreements to ensure value can be transferred in a sale.
Transcript Highlights
Introduction
Holly Rook:
Welcome! Today we’re discussing how recurring business valuations can help you gain financial clarity and make better decisions. I’m Holly Rook, Business Valuation Leader at Adams Brown, with 20 years of experience and an ASA designation. I love helping business owners uncover and unlock their private company value.
Welcome! Today we’re discussing how recurring business valuations can help you gain financial clarity and make better decisions. I’m Holly Rook, Business Valuation Leader at Adams Brown, with 20 years of experience and an ASA designation. I love helping business owners uncover and unlock their private company value.
Measuring Business Value
Tiffani Horth:
Valuation is forward-looking. We focus on three key inputs: cash flow, risk, and growth. These value drivers are assessed using company performance, economic conditions, and industry expectations. We typically use a combination of income and market approaches.
Valuation is forward-looking. We focus on three key inputs: cash flow, risk, and growth. These value drivers are assessed using company performance, economic conditions, and industry expectations. We typically use a combination of income and market approaches.
Holly Rook:
In the market approach, multiples like EBITDA help us estimate growth and risk. For example, a 5x EBITDA multiple implies a 20% return expectation. Higher multiples suggest lower risk or higher growth.
In the market approach, multiples like EBITDA help us estimate growth and risk. For example, a 5x EBITDA multiple implies a 20% return expectation. Higher multiples suggest lower risk or higher growth.
Annual Return on Investment
Tiffani Horth:
Your business is an investment. Valuations help you understand its worth and compare it to other assets. For service-based businesses, goodwill can represent up to 80% of value—though it’s intangible, it’s critical.
Your business is an investment. Valuations help you understand its worth and compare it to other assets. For service-based businesses, goodwill can represent up to 80% of value—though it’s intangible, it’s critical.
Understanding EBITDA
Holly Rook:
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a common measure of cash flow and helps assess what’s distributable at year-end.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a common measure of cash flow and helps assess what’s distributable at year-end.
Value Drivers: Cash Flow, Risk, Growth
Tiffani Horth:
- Cash Flow: Easily controllable. Review expenses, eliminate unused subscriptions, and avoid running personal expenses through the business.
- Risk: Diversify revenue streams, clients, and suppliers. Avoid overreliance on one customer.
- Growth: Harder to measure but can be driven by acquisitions, entering new markets, or improving productivity.
Benchmarking & KPIs
Tiffani Horth & Holly Rook:
Each industry has specific KPIs. Construction focuses on project profitability; manufacturing tracks inventory turnover. Service industries monitor staff productivity. Compare KPIs to industry benchmarks or your own historical performance.
Each industry has specific KPIs. Construction focuses on project profitability; manufacturing tracks inventory turnover. Service industries monitor staff productivity. Compare KPIs to industry benchmarks or your own historical performance.
Case Study: Aero-Mach Labs
Tiffani Horth & Holly Rook:
A Wichita-based aerospace manufacturer focused on legacy airplane parts. Despite a shrinking market, their share grew due to specialization. Strategic acquisitions and recurring valuations helped them track progress and improve metrics like inventory turnover.
A Wichita-based aerospace manufacturer focused on legacy airplane parts. Despite a shrinking market, their share grew due to specialization. Strategic acquisitions and recurring valuations helped them track progress and improve metrics like inventory turnover.
Measuring Annual Returns
Holly Rook:
Annual returns include capital appreciation and dividends. For example, a $200 increase in share price plus $50 in dividends equals a 25% return. Compare this to market indices like the S&P 500 or Dow to evaluate performance.
AI & Tariffs Impact on Valuation
Holly Rook & Tiffani Horth:
- AI: Improves efficiency and supports strategic planning. Adams Brown uses AI for data extraction and industry research.
- Tariffs: Affect input costs and supply chains. Domestic manufacturing is increasing, creating new opportunities but also competition for resources.
Best Practices for Maximizing Value
Holly Rook:
- De-risking: Diversify, build strong governance, and update legal agreements.
- Efficiency: Use tools like Outlook Quick Steps or AI to streamline tasks.
- Setback Preparation: Accumulate inventory or cash reserves to weather disruptions.
- Balance Sheet Review: Distribute excess cash unless earmarked for acquisitions.
Transferable Value & Buy-Sell Agreements
Holly Rook & Tiffani Horth:
- Enterprise vs. Personal Goodwill: Ensure value is tied to the business, not just the owner.
- Buy-Sell Agreements: Protect owners in case of triggering events (death, disability, divorce, etc.). Should include valuation methods and be reviewed regularly.
Concluding Thoughts
Holly Rook:
Valuation is a strategic tool. Use it to track annual returns, think proactively, and prepare for transitions. Even small improvements in risk or growth can significantly impact value.
Valuation is a strategic tool. Use it to track annual returns, think proactively, and prepare for transitions. Even small improvements in risk or growth can significantly impact value.
Contact Us
If you’d like to explore a business valuation, track your company’s annual return, or prepare for a future transition, we’d be happy to help. Contact an Adams Brown advisor today.