Whether you are thinking about selling your business next year or within the next 3 to 5 years, getting an honest, independent, industry-specific valuation can be a good first step. Here are five key points to keep in mind:
1. Not all business valuations are alike.
A “quickie” evaluation offered free on certain websites may be a good lead-generating tool for the business behind the website, but it’s not the same as a custom valuation. Filling out a standardized online valuation questionnaire isn’t the same as talking with experienced industry advisors who know how your business stacks up against similar companies that might be for sale.
2. Business valuations are used for purposes other than selling a business.
An initial “opinion of value” can help set the groundwork for strategic planning and operational decision making. But a more thorough evaluation of every phase of your operation can help you identify the weaknesses in your organization that need to be shored up before putting your business up for sale.
Business valuations can also be used in succession planning, tax planning, or setting up an ESOP (employee stock ownership plan). You will also need an accurate business valuation when adding new partners, compensating retiring partners, or settling a divorce.
3. Different types of print business valuations are used for different types of deal structures.
For example, the fair market value of an ongoing business enterprise will be different from the liquidation value of a company in which business operations will cease and the assets will be sold off.
Fair market value is the cash price for which the property would change hands in an open and unrestricted market. It assumes that neither the buyer or seller are compelled to act and both the buyer and seller have reasonable knowledge of the facts relevant to the transaction.
Equity value includes the value of the inventory and supplies, fixed assets, and all intangible assets minus all short–term and long-term liabilities.
Liquidation value is the net amount realized if the assets are sold after the business is closed.
In an asset sale, the seller keeps the cash and receivables but delivers the business free and clear of all debt.
In an equity sale, the buyer acquires all assets and liabilities on and off the balance sheet.
Enterprise value reflects the firm’s value as a functioning entity. It helps buyers compare companies that have varying levels of debt.
4. Industry expertise really matters.
Without a doubt, understanding the graphic arts industry – especially labels and packaging – is vital. Valuations based on outdated or incomplete industry information do not serve the seller and can create a false picture for the buyer.
For example, some printing businesses are further along than others in the ongoing digital transformation of industrial packaging and label printing. On paper, high-cost analog presses still in operation will have a certain book value.
But as the market demands for high-volume, mass-produced printing continue to decline, analog presses may need to be retrofitted with digital-printing capabilities or automated makeready and finishing systems that allow fast production of shorter runs with variable content. An industry expert will be up to date on the types of production capabilities that forward-thinking industry leaders use to stay competitive.
5. Cherry-picking financial data for your valuation hurts you in the long run.
In traditional product marketing, we sometimes gloss over facts that might negatively affect a purchasing decision. But that’s not a smart strategy when marketing your business for sale.
First, buyers interested in your business will do their own rough calculations to see if your asking price is in the ballpark. If your price seems realistic, they will order a valuation from their own experts. If the number they come up with is substantially different from your asking price, they may negotiate or walk away.
Negotiations will be more difficult if the buyer feels deceived because you suppressed relevant facts to determine your initial asking price.
We Specialize in Credible, Defensible Valuations
With our expertise in label printing, converting, and specialty graphics, the financial and market experts at the LaManna Consulting Group can provide an Opinion of Value that you can present to potential buyers. We evaluate the financials of your business, assess the specific market in which your business competes, review comparable M&A deals, and build a professional valuation.
I disagree with print business brokers who suggest that the business owner controls the sales process. Some advisors imply that telling an attractive story about your business will attract multiple bidders and the highest offer.
That advice is outdated. While it may comfort anxious business owners who are skittish about relinquishing control of their companies, today’s M&A world is dominated by sophisticated private-equity buyers. They make decisions based on logic and reason. Many deals fall through because the seller has withheld unflattering details about the business.
During our valuation process, we request the data that will provide a truthful, accurate view of your business. We prepare valuations that will be helpful to the buyer’s decision-making. We strive to deliver a valuation that is transparent, credible and defensible when negotiating a selling price.
We advise using data from the valuation to help you see a clear path forward. Armed with accurate, truthful data, you can decide whether you want to grow organically, acquire a synergistic business, or sell your business when you’re ready, willing and able to exit.
For example, simple charts and graphics in your valuation report will let you know if your business is outperforming or underperforming your competitors in key areas of financial performance.
With guidance from the LaManna Consulting Group, you can focus on building your business in ways that buyers are often willing to pay a premium for.
We encourage business owners to order an evaluation two or three years before they plan to exit or sell a business.
Before making an offer to buy your business, most private-equity groups will ask to see your last 3 years of financial statements. If you use insights from your first valuation to show three years of improvements in your financial statements, you won’t be tempted to withhold certain facts when you are ready to sell.
For more details on our valuation process, download this article that I wrote for the September issue of Label & Narrow Web magazine, Can We Cherry-Pick the Data Used in Valuations?