The value of your business will be paramount at some point in the future, and maybe at several. It could be when you sell your firm, transition it to a family member, attempt a merger or attract additional investors.
But no one can predict the timing of every opportunity or challenge the rough-and-tumble world of business will throw at your feet. That's why building value sooner is the only way to maximize your returns later.
Many leaders of Canada's Fastest-Growing Companies not only subscribe to that belief, but put it into practice daily. PROFIT editor Ian Portsmouth convened four of this year's PROFIT 200 CEOs, plus a representative of accounting and advisory firm BDO Canada, to discuss their experiences and best practices in the realm of building sustainable business value. Here are the edited highlights of their discussion.
Why is it important to generate value in your business?
Timothy Kimber: One way or another, there's going to be a change of ownership of your business. So, preparing for it is just sound business strategy.
Doug Grosfield: In the high-tech world, perception is everything. If you're not seen as a company growing by leaps and bounds, and gathering tons of equity and retained earnings, you're deemed irrelevant by your customers. The same goes for your suppliers: if they don't feel good about your company's prospects, they won't put their dollars on the table, too.
Linda Farha: For me, building value is important for two reasons. Expanding my communications business to Toronto from Montreal allowed our company to grow exponentially. To bring my company to the next level, I needed to find out where the value drivers are. But once I did that, I also had to ask myself how long I really wanted to be doing this for.
Robert Cherun: I acquired UCIT Online Security, so I have the perspective of the investor as well as the operator. It's about creating a legacy that someone else would be interested in purchasing. In my mind, building business value is about creating a strategy to take your company to the next level while making sure that your customers and employees are satisfied and growing.
How do you identify value, and what steps have you taken to quantify the present value of your business?
Kimber: What's important to me is the value I see in the business, which is way different than someone looking from the outside in. They see a dollar amount or physical assets or processes; but, to me, there's a lot of value in living my life, running my own business and doing what I want to do when I want to do it. You can't put a number on that.
Farha: I have sat down with my accountant and he gave me an indication of what my company is worth. But I didn't go through the formal process because, in the end, I don't really want to sell. What he did confirm is that if I want to grow, it has to be through acquisition or building the company internally.
Grosfield: We haven't had an official valuation, but we've had many people, including consultants, shareholders and accountants, talk to us about that. Business valuation goes beyond the inventory and accounts receivable. It also involves identifying the intangible things that are really difficult to place a value on.
Kimber: I obtained my original valuation for tax-planning purposes about four years ago. It was a good process to go through because it helped us develop a strategic plan for the business and ask how exactly we can add value to the business.
Snelling: At BDO, the single biggest struggle we see with Canadian entrepreneurs is, when the time comes to sell, who do you sell to and for how much? What are you actually selling? Many entrepreneurs are the focal point of the business. For an accountant or business valuator to determine a company's worth at $1,233,000, for example, there has to be something that's survivable beyond the founder, such as the remaining cash-flow streams and existing projects.