A business value gap is a difference between what a business is worth and what it could be worth at peak performance.
To a greater degree, you can tell how well a public company performs by looking at its stock price. In the private business world, this is much harder to ascertain.
Most business owners believe they have a strong sense of their company’s value. Statistics overwhelmingly indicate that most middle market business owners believe their businesses to be worth far more than they are actually worth. Owners find out when they decide to exit and experience the harsh realities of the transaction market.
By acting sooner, adopting a disciplined, methodical approach to private enterprise "equity value" most private companies have the opportunity to substantially increase value.
A personal value gap is a difference between what the owner’s business is worth and what their personal goals require it to be worth.
Disturbingly too many studies show around 70% of business owners have little idea when they will retire!
Most successful entrepreneurs become lifestyle business owners meaning they live off their discretionary income and wide company benefits. Unprepared for transitioning, they fail to accelerate the company value and "sellability" to support their lifestyle after business ownership.
Data shows that 83% of equity and succession planning clients need to grow shareholder value in order to meet ownership’s personal wealth goals. Only 12% of companies secure LOIs for sale, and only 20% of LOIs survive the first pass at due diligence: that’s a 97.6% failure rate.
The earlier business leaders implement an Equity Plan the better.
Boomers own 2.34 million privately-held businesses with nearly 25 million employees, calculates the nonprofit Project Equity. And the U.S. Census Bureau figures roughly 16 percent of business owners were 65 or older in 2012. BizBuySell, the Internet’s largest business-for-sale marketplace, reports a record number of businesses changed hands in the second quarter of 2017 and retiring entrepreneurs fueled the deals.
A staggering increase in sales is anticipated over the next 10 to 15 years. From historical annual sales being in the tens of thousands to anticipated hundreds of thousands. Not prepared many will delay action until the latter stages of this 15-year time frame and that is when the real seller’s crunch will occur. - The value gap is likely to increase for many owners
A process to identify and help ameliorate the business value gap is fast becoming a necessary offering for trusted advisors to fit into their suite of services.
Awareness is the first step!
How big is the gap? What is the timeline? How is the business positioned?
Without a clear picture of the organization, it’s not possible to effectively develop clarity around objectives, and the specific work required to achieve them within any timeframe, regardless of your own timeline.
Having an evidence-based understanding of the business is necessary. From this point, realistic objectives can be determined, and a plan to attack the business value gap can be formulated.
This can be achieved well through organizational diagnostics for comparison of the business against private company standards, and key business drivers, benchmarked against industry best practices for a baseline business footprint.
While building and growing a sustainable business with predictable outcomes is desirable, timelines dictate the plan of attack.
A strategic plan to transform the company into a valuable, marketable asset looks very different over very different time horizons.
In all cases, a company should be aware of the more esoteric drivers of equity value growth. While correlated, they are not entirely synonymous with the drivers that produce revenue growth, or operational strengthening outcomes.
At any stage of business development, it’s wise to consider company value through the eyes of a potential buyer(s); optimizing enterprise value, mitigating buyers’ risk, and developing business readiness.
Those with a shorter time horizon, converging with personal value gap goals should be actively working on them. At the least, these efforts result in less owner dependency, afford a better quality of life, more personal time and peace of mind!
Tailoring services to bridge the gap unique to each client - We provide comprehensive solutions to bridge the business gap, starting with diagnostics
- Transform the company into a valuable, marketable asset
- Prepare for successful M&A at the top of the range of values, and change the illiquid value into AUM
- Acquisition ready
- Growth - hit the ceiling not growing anymore
- Improve control, and dependencies for a better quality of life, more personal time and peace of mind