Why a Business Valuation is a Must
Why is a valuation of your business so important? The one-word answer comes from the previous owner of a print finishing company: SOLD.
Brad Van Leeuwen, former owner of Trade Printing Finishing, believes that if you want your company sold, you need a valuation. This is his story.
When he first came to us, Brad had been kicking around the idea of selling his company for a long time. He didn’t really know where he was headed with the sale of his company, so we started at the same place we start with everyone: with a business valuation.
Why? Because the valuation signifies the endpoint of the sales process. That number can serve as the guiding point to your final destination: a successful close.
Let’s prove our point by sharing Brad’s story, one that starts with a valuation and ends with…Colombia!
The Last Generation of a Family Business
Like me, Brad hails from a family business. He is a third-generation business owner. The company founded by his grandfather specialized in engraving social announcements and stationery. Brad’s parents inherited the business, and Brad took it over from them. “It was a typical transition, from one generation to the next,” Brad recalls.
Like all printing businesses, the company went through a series of changes over the years as the marketplace changed. The company had been successful with in-grade commercial stationery services, including specialty services such as foil stamping, die-cutting, and UV coating.
When stationery died with the onset of the fax machine, Brad moved on to wide-format print-finishing processes, including foil stamping, die-cutting, and UV coating.
The company grew, and he started to consider the ultimate prize.
“I always had the goal of retiring early,” Brad said. “I kept telling myself that five years from now, I want out. It was always a moving target.”
Personal Life Throws a Curve
Brad had initially entertained the idea of selling his business to a key employee. “I wanted to give him an opportunity, and I thought it would work out,” he said.
What began as an altruistic notion turned into an exercise in foot-dragging. Both Brad and the key employee put half-hearted efforts into reaching a consensus on how to sell the business. As days turned to weeks and months, Brad realized his opportunity was slipping away.
Around that time, Brad experienced a setback on the personal front. He went through a divorce, and eventually married a woman from Colombia. After Brad and his new wife decided to move to her home country, the idea of selling the business took on added urgency.
After giving the key employee a selling ultimatum that was not accepted, Brad decided to sell his business outside the company. But to do that, he needed to know what it was worth.
General Industry Valuations Wouldn’t Work
Brad had always kept tabs on the value of his assets. He was mindful of the fair market value of the big iron his company had on the floor. But he knew that wouldn’t help him determine the ultimate value of the company.
He did some research on his own and found some sources for valuations of businesses. Unfortunately, most were about the general printing industry. Brad wanted something specific to the print-finishing business, which was his true specialty.
That’s when he reached out to us. Brad had heard of our focus on the printing and print-related industries, and he requested our business valuation services.
If he was just looking to get a sense of where his company stood among the competition, we would have recommended a PeerComps report on transactions and valuations for similar small businesses. But Brad was in sell mode, so we suggested a complete business valuation report. He agreed.
Eye-Opening Valuation: It’s Profit, Not Assets, That Matter
When the valuation for the company came back, Brad was surprised. The number was lower than he had expected.
“I had always watched the equipment to see what I could sell it for if I had to liquidate,” he said, “But the valuation indicated that profitability was the true driver of value.”
This rude awakening isn’t uncommon. Too often, sellers believe the buyer will be solely focused on the value of the company on the day of the sale. They are, but they are really looking at what your company could be worth 3, 5 or 10 years in the future.
The big iron wasn’t a good indicator of what the future held for Brad’s company. “In retrospect, I’m sure if I would have spent more time building up customers and clientele, I could have commanded a higher price,” he said.
With Value in Hand, Lady Luck Smiles Upon Brad
Brad began the next part of his search in a manner we don’t always recommend: He looked for a buyer on his own.
Over a period of three years, Brad contacted customers, competitors, and suppliers. He engaged in several discussions with potential investors, but couldn’t find a mutually beneficial fit.
Finally, he contacted a private equity (PE) firm that had purchased a similar company to Brad’s. Although the PE firm found that Brad’s company wasn’t generating the revenues it wanted, they still made an offer.
Lady Luck must have smiled on Brad because his patience with shopping the business on his own had reached its end. “I really thought I would hire the LaManna Consulting Group if this didn’t work out, but I wanted to play the last card,” he said.
Fortunately, he liked the hand he was dealt.
Reasons for Valuation: Credibility, Starting Point
Whether you embark on the selling journey by yourself or with another investor, there’s little doubt that a valuation is critical for the sale.
“If you approach a potential investor, you have to be able to offer up financial information,” he said. “I didn’t offer up anything that could come back to hurt me in the end.”
Brad believes the valuation was helpful because it established a negotiating point. “No one disputed it,” he said. “It gave credibility to the price I was asking.”
Transition to a New Life – for Employees and for Brad
As Brad and his wife prepared to move to Colombia, they reflected on the after-sale transition period. He said the hardest part was the reaction from his employees. Even though the new ownership provides more financial security for the company, the employees were apprehensive about the transition to a different workplace culture.
Also difficult was the fact that Brad was no longer relied upon as a key decision-maker. In fact, his input into decisions and the business dwindled faster than he’d expected.
However, the relaxed constraints on his time allowed him to focus more on his new life in Colombia and some new ventures he and his wife might start there.
Having sold his print-finishing business, Brad seems far more savvy than crazy. His future is now entirely his, and he can shape it how he chooses. And all it took was a simple valuation to get the ball rolling.
If you’re thinking of selling your business, call me and I can tell you how an independent valuation can help you become a happy seller too.
Listen to Rock interview Brad Van Leeuwen.
Want to chat about ideas for your future? Call me and let’s talk. (561) 543-2323