Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process Unlocking Client Value Unleashing Firm Growth The Opportunity for Value Growth Services Ken Sanginario, Founder CPA/ABV, CVA, CGMA, CM&AA, CMAP, CTP, MST, MSF The Value Opportunity Profile Corporate Value Metrics, LLC
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Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Unlocking Client Value Unleashing Firm Growth
The Opportunity for Value Growth Services
Ken Sanginario, Founder CPA/ABV, CVA, CGMA, CM&AA, CMAP, CTP, MST, MSF The Value Opportunity Profile Corporate Value Metrics, LLC
Market Differentiation
Value Growth Engagements
Compliance Engagements
Market Potential for Value Growth Services
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Satisfaction a transactional measure …
a backward looking indicator of current problems and issues
Loyalty a relationship measure …
a forward looking indicator of future buying behavior
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Value Disciplines Model
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Bowman’s Strategy Clock
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
9
New markets for existing products
and services
Diversification of new products and
services in new markets
Deeper penetration of existing market
New products and services in
existing market
Ansoff Matrix
Taking Clients away from
Competition
Acquisitions
Value Growth Services
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
U. S. Market Segments
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Statistics to Remember 250,000 U.S. companies ($5M-
$100M sales) will try to exit by 2030
200,000 will be deemed “not market ready”
20,000 will fail to transact
16,000 will sell with
concessions 14,000 will
sell at desired value
220,000 cos $1 trillion
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
A Tale of Two Companies
Private Company Relative Values Public Company
1X
3X-5X
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Valuation Simplified (Gordon Growth Model)
CF1 _____________
k -g V =
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Relative Risk Cost of Capital (RISK)
Public Company vs. Private Company
• Private Co. Cost of Capital = 3X - 5X Public Company • Higher cost of capital = Lower business value • ~ 2/3 of difference in Value = “Company-Specific Risk”
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Company Specific Risk
Public Companies are Viewed as Less Risky;
Stronger Management Teams; Greater Transparency;
Better Organizational Structure; More Comprehensive Strategies; Better Systems and Processes;
More effective Market Positioning; Robust Product Development;
Many Other Drivers
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Business Road-Mapping
What is Business Road-Mapping?
The periodic assessment of a business enterprise
and development of prioritized initiatives to strengthen the business
prepare it for long-term growth and maximize its sustainable future value
in a measurable manner
- Ken Sanginario, founder and developer of the VOP
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
The Premise
Most private companies have an opportunity to double their value over a 3 – 5 year period, by adopting a disciplined, methodical, approach to reducing company-specific risk and increasing quality. If we can identify as many risk areas as possible, assess them objectively, and dynamically link our assessments to the calculation of business value, we can use the process to maximize client value through risk reduction.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Price Ranges in the Private Market
1,800+ LMM PEG transactions since 2003 TEV range from $10M - $250M
8 major industry groupings
Measured the range of EBITDA multiples covering 2/3 of all transactions (1 std. dev.)
Across all transactions / all years
Across size ranges / all years Across industries / all years
By year / all industries and sizes Source ofInformation from GF Data® may not be reproduced or used in work product without written permission from GF Data®.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Ranges reflect 1 standard deviation from the mean. 2014 reflects data through 9/22/14. Information from GF Data® may not be reproduced or used in work product without written permission from GF Data®.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
A Typical New Client Scenario
You land a great new client …
The owner wants to exit within one year …
He believes that his business is worth $15M …
WHY?
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Comparable Companies? Company A Company For Sale Company B 25 Years Old Company Age 25 Years Old
At Risk Environmental Industry Leader Haphazard Training Regular and Formal
Would They Both Have the Same Value?
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
You determine the business value to be $11.0M …
He needs the $15.0M to support lifestyle …
He’s facing a $4M Value Gap …
How do you advise your client?
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Go Grow Your Company and Come Back When You’re
Bigger and More Profitable!
???
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Many owners believe that the most effective way to build business value is to:
Grow Sales
Cut Costs
Make Acquisitions
… or some combination of the above
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
How do they grow sales?
Cut prices? … Is it sustainable? … Will market match?
Chase revenue? … Is it strategic? … profitable? … supportable?
Expand territory? … Can they penetrate? … local nuances?
New products? … Will they succeed? … best investment? Growth can consume capital, strain an organization, damage reputation, increase business risk, and actually erode value
How About …
Execution of a comprehensive written strategic plan?
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Where do they cut costs?
Cheaper products? … Will that adversely impact sales?
Reduce G&A? … Employees? … Q.C.? … support?
Pressure supply chain? … They have long memories. Cost reductions can undercut the ability to support long-term growth, hurt a company’s market position, and destroy long-term value.
How About … ?
A cost study to identify and capture efficiencies
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Can they successfully make an acquisition?
Can the company absorb it? … Pressure exposes weaknesses.
Can cultures mesh? … Often very difficult.
Can efficiencies be captured? … Most are not captured.
Can customers be retained? … Where are their loyalties? Acquiring another company on top of a weak infrastructure can cause failure to both the acquired company and the core business.
How About … ?
Detailed analysis to determine whether acquisition, joint venture, or reinvestment will create most value
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Chasing quantitative results directly can adversely impact the organization.
On the Other Hand: Focusing on the qualitative factors that drive quantitative results can align and strengthen
the organization, improve profitability, enhance growth potential, reduce overall risk,
and maximize value.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Does the contemplated exit channel matter?
Since a company never knows for sure which exit channel will be successful, they should strengthen their company in a manner that will maximize value no matter which channel is ultimately followed.
Overall quality impacts overall value. Deficiencies in any area may be viewed as indicators of overall quality, even if they would not directly impact the operation after a transaction.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Developing Your Own Process
Step #1 – The Assessment
A. Every Company is Comprised of a Series of Interdependent Modules 1. Planning 2. Leadership
3. Sales 4. Marketing
5. People 6. Operations
7. Finance 8. Legal
B. Subdivide Each Module for Easier Assessment and Management Example: A.7. Finance
a. Finance Team b. Finance Strategy c. Financial Planning
d. Analysis & Reporting e. Financial Stability f. Balance Sheet
g. Internal Controls h. Information Systems i. Risk Management
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Developing Your Own Process
Step #1 – The Assessment (cont’d.)
C. Develop a Question Set to Assess Each Subcategory
Example: A.7.d. Financial Analysis and Reporting
i. Are the Company’s financial statements audited? ii. Are full financial statements prepared on a monthly basis? iii. Does the Company prepare annual projections? iv. Are the projections reviewed and updated at least quarterly? v. Are the projections supported by detailed written assumptions? vi. Is product line or SKU profitability regularly analyzed? vii. Is inventory regularly evaluated for obsolescence? viii.Does the Company benchmark performance against industry metrics? ix. Does the finance dept. evaluate all new strategic business opportunities?
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
The Link Linking the Assessment to Value
A. Once questions are developed, create a standardized answer system to objectively score the answers.
B. Just as questions were developed in a balanced manner, the scoring system for each category should also reflect balance.
C. The scoring system will then be used to compare the company before and after improvements are made.
D. Implemented broadly enough, the percentage increase in overall score should approximate the percentage increase in baseline value, without any corresponding increase in sales or profitability.
E. Individual category scores can then be used to estimate the impact of various organizational improvements on overall value.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
The Roadmap
Moving to Implementation
A. Develop recommendations to address each of the identified weaknesses.
B. Rank the recommendations in order of priority to be addressed.
C. Provide several “what-if” scenarios to demonstrate the impact of various combinations of recommended initiatives.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Conditions for Success
1. Organizational balance is perhaps the most critical element to establish.
2. Standardized questions should be broad and deep enough in each category to adequately address all potential company-specific risks.
3. Include enough overall questions to allow some assessment error without rendering the result unreliable.
4. Establish the links at the sub-category level to provide transparency as to how each category affects the overall results.
5. The process must be simple, easy to execute, and easy to understand, for the advisor and the company.
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Balance is Critical!
Methodically, Measurably, Maximizing Business Value with the confidence of a proven, repeatable, process
Example of Value Sensitivity to CSR (directional example, only)