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About Your EKSiT Outlook

  • About Your Assessment

    About Your Assessment

    Valuation of a business is a complex combination of measures that can be used to estimate the value of the business for different reasons. When used in estimating a value for business or share sale, the valuation estimate is used as a defensible estimate or starting point of the price of the business expected to be paid. The actual sale or purchase price will reference a valuation but also will consider other factors such as the structure of the purchase agreement, timing of payments by the purchaser, amount of ongoing risk that the vendor-owner will have and for how long, etc. The final negotiated purchase price also may be higher or lower than the valuation based on the fit with the purchaser’s needs and wants.

    In order to increase valuation, current owners of businesses should consider what a potential future buyer would consider as most valuable. The following points should be considered by business owners when appropriately building their businesses and considering their eventual exit depending upon their views of valuation and how they wish to manage valuation for their particular exit strategy.

    1. Redundant cash in a business is, logically, not purchased by a buyer and can be removed by the vendor at an appropriate time before a sale process. The vendor should consider any tax implications and discuss the cash extraction with their accountant and personal finance advisory prior to removing any distributable cash.
    2. Debt, however, will most certainly be considered by a potential purchaser and, ultimately, an ideal situation for a sale is a business that is producing a significant amount of cash with reasonable or, at least, controllable/serviceable debt. Focusing efforts on improving cash flow (see #3 below) and reducing overall debt will add to the valuation of the company.
    3. Business buyers typically seek reasonably secure cash flows that will provide a return on their investment. The greater the cash flow for an extended period of time (minimum 3 years) the greater the valuation will likely be and the more value the buyer will place on the business. Focus on creating greater and sustainable EBTIDA to add value to the business.

      For clarity, EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization.
    4. If a business is “a cash flow business” and doesn’t own significant tangible assets (see the next item below), efforts should be made to ensure the sustainability of the cash flow. Sometimes the processes and procedures that are unique to the business, have been proven and documented, and can be replicated or repeated can be seen as tangible assets and valued by a buyer. Efforts to document business processes and ensure their repeatability can be made to create a tangible process that can act as a tangible asset. Patents are an example of this in the extreme case.
    5. Business buyers also seek tangible assets that have terminable value (are salable by the business should they need to liquidate for some reason). Tangible or fixed assets can be seen and touched and so, typically, carry value in addition to the EBITDA cash flow.
    6. “Strategic Fit” is also a good way of adding value to a potential sale price. Although savvy business buyers attempt not to pay for revenue improvements, cost efficiencies, or other benefits that they themselves bring to a business (versus the value that’s in the business on its own) a premium can typically be expected and negotiated when a business fits well with the buyer’s needs. Adding significantly to physical market position, production, sales, or distribution capability, or providing new products and services that are complementary/additive to the buyer’s current business can add significant negotiable value.

    So, focusing on increasing earnings, reducing debt, adding assets that are valuable long-term, and removing risks from the business all will make the business more attractive to a buyer. If you think of it in terms of all the things you would wish for in a business yourself – a business that takes little work, has very little or no risk, and always produces a good profit – you’ll be creating a business that others will want to buy and at a good price. Ironically, it’s also a business that you would think of just not selling because it’s so easy.

  • About Your EKSiT Saleability Score

    About Your EKSiT Saleability Score

    We are often asked “can you tell me what my business is worth?” That question is understandable and often provides context for business owners that is valuable to help them process where they currently stand and what it means for their potential retirement. The problem with that question is that the answer doesn’t give business owners everything they need. Having someone review your financials and use a multiple of net profits to establish a “ballpark” on your Company value is easy, but to use that information as the sole guide towards your exit from the business is a dangerous proposition.

    We established our EKSiT Saleability Score to help business owners understand that there is significantly more that impacts your company’s saleability than simply what the financial statements show. Business owners are in business to make money, and knowing your likelihood of success when selling your business (and being able to do something about it) is the kind of guidance business owners have never had. Until now.

    Your EKSiT Saleability Score evaluates your business, your industry, and your position within it, to provide a projected percentage of how likely you are to achieve a successful exit outcome, specifically in the context of pursuing a sale to a third-party (i.e. arm’s length) purchaser.

    We have created a unique algorithm to consolidate and analyze your business in a manner that provides tangible and meaningful feedback. The EKSiT Saleability Score combines data from our years of experience within the industry, facilitating and executing transactions on behalf of our clients, to quantify the factors within that cross-section of businesses to indicate your business’ relative position.

    The EKSiT Saleability Score combines this historical data with information updated in real-time from our vast buyer network, and the finance community at-large. We have mined the data from a breadth of buyers from across Canada to empirically quantify the factors that are identified as being the greatest contributors to a likely sale outcome.

    These two areas are then brought together utilizing 87 unique data points to determine your personal EKSiT Saleability Score.

    As per the legend* within the EKSiT Saleability Score tab, the score ranges carry a broad set of recommendations in terms of potential direction and the likelihood of achieving a successful outcome. Naturally, there are variances within the score, and further context could impact the outcome outside of what has been measured. Given, however, our experience in assisting small business owners through this process, we believe the tool to be a valuable guide in identifying the best next steps for our clients.

    • 0-60 - Not Saleable
    • 60-70 - Pursuing Sale Not Recommended
    • 70-80 - Sale Possible
    • 80-90 - Sale Probable
    • 90+ - Immediate Sale Recommended
  • Frequently Asked Questions

    Frequently Asked Questions

    Click on a question below to learn more about your EKSiT Outlook.

    • 1. I don’t understand my Saleability Score. How was it calculated?
      Our saleability score takes into consideration 87 different data points using the questions you answered throughout our EKSiT Outlook software. It assumes 100 is the most saleable business possible and works its way down from there. As you will see from the legend on the EKSiT Saleability Score tile, there are different thresholds ranging from “very saleable” to “not at all saleable” and everywhere in between. This algorithm is designed to help business owners understand that financial performance is not the only indicator of the likelihood of success in a sale transaction . Small changes can greatly increase the likelihood of success when taking your business to market, and this score allows you to know the risks/rewards prior to that taking place.
    • 2. I thought my business was worth a lot more than that. Why isn’t it?
      Our team takes into consideration certain risk factors that we have uncovered through the EKSiT Outlook process. Don’t focus on the number too much, let’s have a conversation about what factors might be driving it down and what can be done about them. Often, business owners are told their business is worth something that is simply just a mathematical calculation. Our assessment of value takes into consideration much more, which is why it may not align with what you have been previously told. Either way, let’s talk about those factors, some of them are very easy fixes that can impact your value.
    • 3. I don’t think your valuation took everything into account given the tax planning and/or other benefits (including intentional suppressing of profitability) that occurs in my business. How did you account for that?
      We attempted to uncover the most common areas where normalizations occur, but any areas outside of what was normalized could still impact the valuation. If there is more relevant information that you would like to share with us, we would be happy to run the report again using more complete information.
    • 4. How much would it cost to sell my business?
      EKSiT Strategies is the only firm that employs true flex pricing as it relates to the sale of your business. In our opinion, the current pricing model used widely across the industry is broken. It uses blanket pricing that doesn’t take into consideration that certain businesses are better positioned for sale than others. Our model is centred entirely on your Saleability Score. Those that score better, pay less because they should. The risk is less to us. Check out www.eksitstrategies.com for more information.
    • 5. Can you help increase how much my business is worth?
      Absolutely. We can also provide you with the tools to do it yourself if that is your preference. The world is full of people who say, “I can help you increase the value of your business, just pay me hourly to figure it out.” Since we’ve already uncovered this information through the Outlook, we will be able to tell you exactly what projects should be undertaken and what kind of impact they can have on your company’s value, without having to charge you again to do it. Then it’s up to you to decide what’s important to you and whether the time/energy/money is worth it.
    • 6. Can you help increase my Saleability Score?
      We certainly can. As is the case with driving value in your business, we will outline which areas are driving your score down and develop a plan of attack to remove that obstacle(s). You can follow along and see how the changes you are making are increasing your Saleability Score. All the while, reaping the benefits of having solved issues in your business.
    • 7. What now?
      No matter what the results say here, there’s SOMETHING you can do to get one step closer to achieving your goals. Let’s talk.