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Determining a business' value is not each astir adding up gross and subtracting expenses. While an important piece, these difficult numbers are only half nan equation for computing what a institution is worth. To travel up pinch nan existent value, we besides look astatine factors for illustration nan level of proprietor involvement, company goals and maturation opportunities. When we usage nan complete equation, we get a broad image of a business and tin amended understand nan communicative of its past, coming and future.
Calculations whitethorn alteration depending connected nan company, but successful a patient one, location is astir a 50/50 divided betwixt nan quantitative (financial) and qualitative (non-financial) sides of performance. If nan business isn't profitable, it's much important to attraction connected nan quantitative broadside and hole nan numbers first. Many owners don't want to perceive that, but if they're not hitting their numbers, it whitethorn mean nan business is not working. They must hole nan quantitative issues earlier moving to nan qualitative side.
Related: What Is a Balance Sheet and Why Does Your Business Need One?
For patient companies that want to maximize their value, nan qualitative indicators tin beryllium bundled into 3 main categories.
Evaluating quality
1. The owner's goals
We've recovered important investigation showing that if an proprietor has defined goals and plans for nan early that are successful statement pinch marketplace expectations for their company's value, they're going to person a overmuch stronger exit. What is nan owner's defined goal for exiting nan business — to get nan astir money, to return attraction of their labor and to guarantee a legacy? You must past get to nan "why" down nan goals and devise a scheme of action. It almost doesn't matter what nan answers to nan questions are; having achievable goals and a strategy for reaching them tin summation nan company's value because it keeps nan proprietor focused connected improving nan different areas of nan business.
2. The owner's role
The grade of nan owner's engagement is simply a captious indicator, but possibly not for nan logic you think. The much progressive nan proprietor is successful day-to-day operations, nan much cardinal they are to nan business, nan less the business will beryllium worthy down nan road. If nan proprietor is nan linchpin that holds everything together, what will hap to nan institution erstwhile they leave? Evaluating operations is much astir nan strategy and nan building of nan team. Look astatine nan organizational floor plan and who's connected it – are they bully labor aliases bad employees? Examine nan company's processes and procedures and really caller squad members are trained and onboarded. The proprietor sets nan vision, but it's nan squad that increases institution worth by carrying retired nan vision.
3. Growth opportunities
Nobody wants to bargain a business and support it precisely arsenic it is. They want to spot imaginable for maturation successful nan future, particularly nan imaginable for return connected their finance arsenic a buyer. Whether it's a elemental value summation aliases caller locations, whoever buys nan business is going to inquire astir growth opportunities. Indicators for illustration merchandise aliases work diversification successful some nan institution and nan manufacture it's successful springiness a bully consciousness of whether nan institution is moving guardant aliases opinionated still (and astatine consequence of going backward). The much imaginable you tin show, nan much upside location will beryllium for nan adjacent proprietor — adding up to greater value.
Related: 8 Factors That Determine nan Financial Health of a Business
Cycle of success
When nan qualitative broadside of nan equation is working, it each ties together. The proprietor knows nan goals, which are aligned pinch wherever nan institution is going, and is starring nan statement but moving themselves retired of nan day-to-day operations; nan business grows and creates much maturation opportunities for nan adjacent owner. Paired pinch profitable numbers, it's a rhythm that builds a high-quality business.
For nan champion owners, it takes a minimum of 3 to 5 years to get that rhythm moving for you and person reliable indicators of your value. Making it portion of a 10-year strategy is moreover better.
At Exit Factor, we person 62 different qualitative indicators that we usage for determining institution worth. We don't usage them all, aliases moreover adjacent to that, for each business; it's usually a matter of tweaking 3 to 5 of nan 62 indicators. Figure retired which of those 62 are basal for your company, and you'll person a genuinely forward-looking strategy for profitable growth.