Business Valuation Case Study

Two years ago, we were asked to value a client’s business. The valuation came in at a significantly different figure to what the client had expected. Once we were able to stabilise operations, we investigated some reasons why. A major part of the reason was that the business was very owner dependent. The business was owned by a husband-and-wife team who worked very hard to establish the business from nothing to where it was. As they had done all the work themselves, the owner dependence was severely impacting the business value. The business value gap was quite substantial – around $1.2 million and thus, we needed a strategic plan to close the gap.

Objectives

1. Remove Owner Dependence
2. Build a Strong Structure
3. Increase Profits
4. Reduce Debt

Strategy

We embarked upon a strategy of building the organisation and a management structure around it. We also implemented a process of establishing simple KPIs. We set a number of units to be produced every day, along with some lead indicators (number of bookings) to that production, and some lag indicators. We knew that as long as we achieved the number of bookings and the targeted return on each of those bookings, we could achieve the production on each day. This means – what was being produced, was being sold. This allowed us to drive the profitability of the business to where it needed to be. Soon, the business was returning a higher profit than what the owners were spending on salary and wages.

This then enabled them to not only make profit, but also grow the business, grow the structure around it, put key people into key roles, whether it be finance or administration or in an operational management capacity. The owners were able to gradually grow themselves out of their day-to-day hands-on role.

Where does the business currently stand?

We have just embarked on the process of revaluing the business. The business's profitability has substantially improved. The business has grown by about 30% in two years. So, it has not only grown, it has grown profitably. Now, the business has cash in the bank, and has been investing in its growth, using its own funds in the process. We expect a pleasant valuation outcome.

In this case, we have navigated and closed the gap substantially in a very short period of time by taking a very focused and simple approach to how we're going to build the business.

Or reach out to our team to find out how we can help your business grow.