Checklist For Your Business Valuation

Evaluating your business can be a treacherous and tedious task, especially if you are contemplating an exit strategy or retirement. However, simply by examining and understanding certain aspects of your business, you can greatly reduce the stress! Below, we have comprised a checklist in order to simplify your endeavor.

1. Know Your Company's Annual Revenue: Knowing your annual revenue is extremely important when evaluating your company. This number is the total sales volume your company is generating. It is a great starting point to compare how much you are selling to how much you are actually making. If your company has sky-rocketing sales, it could be a great indicator of success. However, it is important to check some other numbers first...
2. Know Your Company's Net Income: You can find your company's net income on the bottom line of your profit and loss statement. This number is especially important to consider when determining whether to sell your company. Typically, investors will offer you 1x-5x your net income. Any expenses will reduce this number. The benefit to merging with another company is that they can typically erase some of these expenses as they will have their own people,processes, and place of business to operate from. In order to raise your company's net income, it can pay to look at your profit margin.
3. Know Your Company's Average Profit Margin: Profit Margin is revenue less cost of goods sold. Operating with a higher profit margin will not only increase your net income, but it will also catch the eye of investors. It allows investors to understand how much money you have to work with before expenses and therefore, increases the value of your company. 
4. Know Your Company's Number of Employees: Knowing the amount of employees you have on deck allows you to examine your workforce further. Are there certain key players that need to stay on board with the company in case of a sale? For each employee that stays, your buyer must spend more money covering their salaries. Therefore, limiting the number of employees can be rather lucrative by increasing your bottom line (net income).
5. Know How Many Sales Reps You Have: Sales reps bring value. Each sales rep has his or her own list of accounts that can expand value. If you are deciding to retire from your company, and you are the only sales representative, the potential loss of relationships can reduce your net income multiplier for the purchase price. However, if you have multiple sales reps that will be maintained in the event of a sale or merger, you are likely to get a higher multiple of your net income.
6. Know Your Annual Revenue Under Contract With Clients: Any business done outside of a contract has essentially no long term value to an investor interested in purchasing your business. There are no guarantees on how long that business will last. Alternately, accounts under contract are considered to be a great asset, which means investors are willing to pay you more. For example, if your company operates with a 3 year contract with an account that pays $100,000 per year, that money will add to your company's value and can attract a higher upfront payment for your business.
7. How Long Until You Want To Retire?: Knowing how many years you would like to run your business is essential in creating an exit strategy. It is also beneficial for a potential buyer to know. If you would like to work 1 year before retiring, investors can be willing to work with you and pay you upfront, commission, and provide you with a payout after you retire. If you change your mind, these plans are typically flexible and can be arranged to fit your personal schedule.
8. Have A Current Balance Sheet: Your balance sheet lists all your assets and liabilities so you can compare and contrast whether one outweighs the other. What assets do you have? Equipment? Real Estate? Accounts Receivables? What are your liabilities? What do you owe on your equipment, real estate, and accounts payable? All this information is extremely important to investors, and in turn, should be extremely important to you.
9. Have A Current Profit & Loss Statement (Income Statement): The importance of having a profit & loss statement on hand is simple: it tells potential investors how you are doing. It provides a place for annual revenue, expenses, profit margin, and net income to be examined and compared.
10. Have 3 Years Worth of Tax Returns: Having 3 years worth of tax returns on hand can certainly encourage transparency between you and any potential buyers. It allows you to demonstrate that everything on your profit & loss statement is factual, therefore setting buyer's minds at ease and encouraging them to enter a partnership.
11. Know Your Inventory: Do you have any inventory? If so, how fast is your turn rate? If your inventory is moving slowly, it can stick out like a sore thumb to any potential investors. You are paying for goods that are not being moved therefore tying up excess cash. To increase you valuation, you may want to deplete obsolete inventory. 

Evaluating your business can certainly appear to be an initimidating task. However, our consultants (link) can help you hone in on certain aspects of your business and clean it up so that it stands out to potential investors or buyers.

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"It’s one thing to own your business… it’s completely different when your business owns you.  The best thing about joining Proforma Durkee was, that I could leverage my experience and Proforma Durkee’s processes to give my clients an exponential increase in service and the attention they deserved.

     Not only do they have access to me, but now they also have a dedicated team on hand to address any needs my customer has. Additionally, it has freed me up to do what I am best at-selling to existing clients and meeting new prospects." - Stacy H, Marketing Consultant with Proforma Durkee since September, 2016.

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