Gap Analysis:

Forget What it IS worth.
What CAN it be worth?

Maximize Enterprise Value.  A formal valuation is just the beginning.  The real concern, of course, is: is it enough?  And if it isn’t, how to rapidly grow value and exit on your own terms? 

EXIT PLANNING VALUATIONS

We talk a lot about the concept of “gap analysis” – and rightfully so. You can’t really make a plan without knowing 1) where you are and 2) where you want to get to. Here we’re going to kill some trees talking about gap analysis in the context of exit planning.

First, a Few Assumptions:

All pretty straight forward. After all, we’d be hard pressed to name a business owner we’ve met that DIDN’T want to control their destiny. But the fact of the matter is that transitioning out of a company is difficult. In order to truly exit on the terms of your choosing, it is imperative to put a careful plan in place to do so.

Two Tools in the Toolbox

When heading down this path, the starting point is getting a grip on two key data points:

gap_analysis_bell_curve

To understand these data points, you need to complete a certified appraisal, and work with a financial planner to develop an understanding of your retirement needs. Both of these items will cause you to reach into your pocket and pay for advice, yet this advice has an incredible ROI to it. We can run these numbers all day for you – but suffice it to say that the return on X-thousand dollars now for 1) a comfortable retirement, 2) increased enterprise value, and 3), peace of mind on knowing with certainty that you WILL be able to retire, equates to a really darn good investment.

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A Quick Look at Gap Analysis

So you’ve decided to engage the services of your favorite valuation firm, and a trusted financial advisor. We are going to work the numbers, dive into the company, and come up with a value. It looks like this.

Turning the page, when you work with your financial advisor, we’ll add another data point to the chart. Now we can see what the gap looks like in current value and required value.

net_enough

Putting a Plan in Place

With this information in place, it’s time to put thoughts into action. How are you going to achieve your goal valuation? We can provide some insight and point you in the direction of the right folks to help. All in all, we can emphatically say that in the vast majority of cases, “the passage of time” is not a strategy that is going to help achieve your goals. It’s time to act.

Increase Earnings and Mitigate Risks

Perhaps the number one driver of value is earnings. Increase earnings and you will increase your valuation. So start here by tackling your gap:

increase_earnigns

But let’s keep in mind the issue of risk mitigation. In the valuation world we often trot out this bell curve chart, pointing out that our goal is to figure out where your company exists on the curve. By addressing the factors that increase perceived risk to your firm, you can accelerate the positive impact that increased earnings have on value.increase_earnigns_and_risk

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What if Value Exceeds My Goal?

Easy. You are in the drivers seat. You can now make some key decisions as you approach the exit:

  • Forego an earn-out (less overall value, more cash up front), and side-step messy post closing issues.
  • Shorten the negotiations process at the deal table as you do not need to fight for every last dollar (making for a much less stressful transition).
  • Fund projects that you feel strongly about, be they charitable, rewarding deserving employees, etc.

But the above still requires advanced planning. Working with a good financial advisor, you’ll understand that “at a value of $X, I have a 90% chance of fully funding my retirement.” This data is powerful when it comes to approaching your exit.

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Final Notes

If you don’t work in advance to understand these two critical data points (value now and your “magic number”), you are really selling yourself short. It’s impossible to control the course of your exit from the company without really understanding these two data points – ideally well in advance of your chosen time to exit.

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How can Quantive Help?

Our Exit Planning Program is designed to help ownership proactively plan for their “third act” – life after business.  It starts with our gap analysis program: Launch Pad. 

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Business Valuation Purposes

BUY-SELL AGREEMENTS

Quantive performs business valuations in support of buy-sell agreements, to include buy-ins and -outs, as well as shareholder disputes.

VALUATIONS FOR DIVORCE

We perform business valuations in support of divorce proceedings, working either jointly retained or on behalf of one spouse.

PURCHASE AND SALE

Smart entrepreneurs routinely retain Quantive to understand price early and gain a roadmap for impending price negotiations.

LITIGATION SUPPORT

We provide litigation support for shareholder disputes, lost profits, shareholder oppression, commercial litigation, and various other reasons.

ESTATE AND GIFT

We perform valuations in support of various gifting strategies, as well as in support of probate requirements.

SBA LOANS

Quantive is qualified to perform valuations in support of SBA financing. Our reports are compliant with all SBA SOP’s.

INSURANCE

Quantive values companies for a variety of reasons related to insurance to include establishing values for funding buy-sell agreements.

OTHER

We perform valuations for business planning, gap analysis, lost profits and damages, and a variety of other reasons.

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