Jan 15, 201909:54 AMExit Stage Right
with Martha Sullivan
Unpacking stage one of value maturity: Identify
(page 1 of 2)
In my last post, Introducing the 5 stages of value maturity, the question was posed: Where is your company at within the stages of value maturity? When something is mature, it’s fully developed, completed, or elaborated. This includes the value of your business. The question challenges you to assess how well developed the value of your company is. Is it meeting its full potential?
Savvy business owners and leaders are increasingly aware of the important concept of value maturity. She knows what stage of maturity her company is at. He knows, given objective data, what he needs to do in the company and with his team to advance to the next stage. They are engaging their management team and employees, driving the company forward, and maximizing its potential.
One of the common pushbacks I hear around involving management teams in value-enhancement initiatives for the company is that owners don’t want their team to think that they are selling the company or that it’s all about the money. Value maturity does not care whether selling the company is on your immediate radar or not. It’s purely good business strategy for the health of your company.
The five stages — Identify, Protect, Build, Harvest, and Manage — are both a progression and a recurring cycle. Yes, within Harvest owners are challenged to ask themselves if they want to continue to invest in the company or start investing in crafting a successful transition. Both alternatives demand investment, but there is no predisposition to either answer. The expectation is that management continuously drives the business forward using the value maturity and acceleration models. Trust me, your management team wants a healthy company as much as you do. Engage them.
Over this and the next four posts, we’ll explore each stage and how to embrace the work to be done to drive your continued business success forward.
Stage one: Identify
This stage focuses on assessing and inventorying the qualities, characteristics, and potential value of the business in an objective and unvarnished manner. Your goal in Identify is to gather data, opinions, and perspectives about where the company is today — beauty, blemishes, and all. You and your team accomplish this goal in three distinct steps:
- Get a calculation of value of the company from an independent, qualified, and credentialed provider.
- Perform a risk and readiness assessment of the business with your management team and an objective, independent facilitator.
- Develop an action plan based upon your findings.
While the steps are distinct, you must complete all three in sequence to reap the benefits of and ability to graduate to Stage two: Protect.
Calculation of value: There are two levels of business valuation that are performed by independent business valuation analysts — a calculation of value and a conclusion of value. You want a calculation, which is the simpler and less expensive approach. (The conclusion of value is called for when you are dealing with the IRS in gifting and estate matters, or the courts in situations of divorce or dispute.)
Some readers may be thinking, “I don’t need that. I know what the value of my business is,” even though they haven’t had a valuation analysis performed. The fact is, nine times out of 10, business owners who say this discover that the number they “knew” is different than the number the market or an arms-length investor would assign to it. Assumptions such as these lead to surprise and often disappointment.
Those who embrace the valuation process find it’s very instructive and illuminating. It may be the first time a business leader learns what goes into determining a business value or offer to purchase. With this knowledge, you’re better positioned to act, particularly if the number isn’t what you expected it to be.