Saturday, June 8, 2013

Industry Innovator: LeJuano Varnell - Valuation Virtuoso

How much is your business worth?
by LeJuano Varnell

You have invested every cent you have in your business. Do you have any idea what it is worth?
Every business owner should be working hard each day to build as much value into their business as possible.  Instead, we often work so hard managing employees, customers and suppliers; we forget that building value is the ultimate goal.

Complicating matters is the reality that understanding how much the business is worth is not an easy task. Typically we only try doing it when we must. Whether buying and selling a business, seeking investment, or pleasing lenders, determining the value of your business is never a luxury, but is always VERY important.

Finding the value of a company is more art than science. The process will depend on a variety of factors. Some of the more important of these are – the asset value of the business, the cash flow it generates, and the underlying reasons why an interested party cares to buy or sell the business.

Even at a car dealership, buyers and sellers rarely have the same price in mind. The same is true for business buyers and sellers.  Since businesses don’t have sticker prices, a business valuation is the best starting point for negotiating a fair transaction. If both the buyer and seller are truly interested, the valuation will be most helpful in finding common ground. Both parties may wish to adjust the value up or down depending on the specific factors of the transaction.

For example, important factors like location, customer base, and consistency of earnings, have a different “value” to different sellers and buyers. An accurately done valuation will serve as a helpful foundation. The value of your business is also dependent upon the value of comparable businesses available for sale in your market at the same time. If your potential buyer understands their choices, it allows for a greater opportunity to negotiate.

For these reasons, when it is time to have a business valuation, it is best done by a professional who understands your business, your market, and your needs. Just as you have help when buying or selling your largest personal asset, your home, you should afford the same for your largest business asset. A professional can help find the best buyer or seller for your company, at a price that suits the needs of each party.

All things considered, it is important to remember the following words of wisdom from Michael Osanloo, Kraft EVP, when speaking on Kraft’s potential acquisition of Cadbury:
"There has been a lot of talk about what Cadbury is worth. The simple fact is that Cadbury is worth what someone is willing to pay for it – nothing more."
LeJuano Varnell  is a finance professional with 15 years experience working in the debt and private equity finance industry in the United States, Sub-Saharan Africa, and Southern Asia. 

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