Beyond Dollars & Cents: How To Determine Business Value
Even though financial data plays a large role in determining a business’s value, it’s really only a starting point. In most cases, “value” is synonymous with quantifying the future returns to an owner or investor. Alone, financials tell an incomplete story of the past, and we’re left asking countless ques- tions to determine how a business got to where it is today and where it’s going in the future. Therefore, to un- derstand what your company is truly worth and to accurately forecast its future returns, we’ll use a combination of your financial data as well as other information.
Look Beyond The Profits The first step in understanding a business’s value is understanding the business itself. What is your company’s competitive advantage? Are certain customers vital to the con- tinued success of your business? What strategic opportunities do you plan to pursue? To determine the answers to these questions, we must speak with those who know the most about your business – and nobody knows the business better than its own- ers and key employees.
Quantify The Unquantifiable
Talking to owners and key employees within your organization provides us with vital information from a valuation standpoint. However, you’re probably wondering how we can boil all this qualitative information down to dollars and cents. In theory, while it may be next to impossible to put a numerical value on individual pieces of qualitative information, it can be hypothesized that the aggregate value of these qualitative pieces is already incorporated in your business’s overall value. This is true if we derive value solely from historical financial results because, ultimately, it’s a culmination of qualitative factors that have led to these quantitative results. Even so, this method of thinking is correct only to an extent. Value based solely on historical financial information would only be appropriate if you could guarantee your business would perpetuity perform as it has historically. But, with so many social, economic and political changes taking place at any given mo- ment, it’s impossible to guarantee that anything will ever remain the same. A valuation and transaction professional will take into account how these intangible elements will play into your business’s competitive environment and overall econom- ic conditions. As a result, qualitative information will be translated into quantitative forms of measurement, which ultimately help us predict how your business will likely perform going forward. Depending on the information collected, this new quantitative data could ultimately impact the business’s overall profitability, growth and risk level. You’re probably wondering why you should even care about these types of math- ematical questions. As a business owner, you’re responsible for making critical busi- ness decisions every day. Oftentimes, these decisions will play a major role in deter- mining your business’s future. When you understand what factors ultimately drive the value of your business, you can keep them in mind as you go about your daily decision-making, which will put your business in a better position for future growth. Do You Know The Value Of Your Business?
You might think you already have a pretty good idea about how much your business is worth based on one method or another. Don’t be fooled. Such a mindset can result in valuation issues consistent with endowment bias (the tendency to value an asset more just because you own it). If you plan to sell your business one day, the value will likely be determined by an independent external source to ensure that the price point is fair for all parties. Rea & Associates can help identify the true value of your business and provide you with information that can be used to help you make better, more strategic decisions. If you’d like to learn more about our valuation and transac- tion advisory services, feel free to reach out to me anytime. When you understand what factors ultimately drive the value of your business, you can keep them in mind as you go about your daily decision-making.
famous people CERTIFICATIONS, DESIGNATIONS, FIRM-WIDE HONORS & ANNOUNCEMENTS
KEY NORTHEAST OHIO REGION (AMHERST, CLEVELAND, MEDINA & MENTOR OFFICES) EAST CENTRAL OHIO REGION (MILLERSBURG, NEW PHILADELPHIA & WOOSTER OFFICES) SOUTHEAST OHIO REGION (CAMBRIDGE, MARIETTA ZANESVILLE OFFICES) WEST CENTRAL OHIO REGION (DUBLIN & LIMA OFFICES)
Morgan Helmick Matt Long • “Single Audit Update,” Ohio Public Transit Association (OPTA) • Panelist & Coordinator, CAS Technol- ogy Education Day, (Rea event) Anita Martin Heather McNichols • “Measurement Focus & Basis Of Accounting Recognition,” Ohio Gov- ernment Offices Association (GFOA) Intermediate Accounting Conference • “Cloud Accounting, QuickBooks Online & QuickBooks Online Applications,” CAS Technology Education Daye • “Specialized Accounting Applications,” GFOA Intermediate Accounting Conference Zac Morris The Plain Dealer in Cleveland recog- nized Rea & Associates’ Northeast Ohio Region as a 2019 Northeast Ohio Top Workplace for the eighth consecutive year. EAST CENTRAL OHIO REGION Katie Snyder Chad Welty EAST CENTRAL OHIO REGION • “MD&A,” GFOA Intermediate Accounting Conference • “Entrepreneurship & How To Start A Business,” Junior Achievement of North Central Ohio’s Career Readi- ness Conference OHIO REGION Rea & Associates was recognized as a “Top 100 Firm” by Accounting Today. The firm moved up 13 spots from last year to the 86th position. The publication also recognized Rea as the 13th fastest- growing CPA firm in the country. NORTHEAST OHIO REGION Chad Sinkovich was awarded “Muskie of the Year” by Muskingum University. SOUTHEAST OHIO REGION • “GASB 84 and GASB 87,” OASBO • “Government-Wide Financial Report- ing,” GFOA Intermediate Accounting Conference Rea & Associates merged in the Cambridge firm Tucker & Tucker CPAs on May 1. Derek Conrad WEST CENTRAL OHIO REGION Darlene Finzer Brian Garland earned the Certified Information Systems Auditor (CISA) certification. DEMONSTRATED EXPERTISE & THOUGHT LEADERSHIP Speaking Engagements • “Single Audit Update,” OPTA • “Fraud,” Five County Chapter OASBO • “Securing A Brighter Future: A Social Security Roadmap,” Union Country Club Dee Gray • “Payroll Accounting,” Zane State College Allie Hinton • “Fraud,” Five County Chapter OASBO NORTHEAST OHIO REGION Mindee Johnson Chad Gorfido • “Note Disclosures,” GFOA Intermediate Accounting Conference • “Uniform Guidance Procurement Update,” Ohio Association of School Business Officials (OASBO) • “Medicaid School Program Update,” OASBO WEST CENTRAL OHIO REGION Becca Davis • “How To Conquer The Podcast Game: Engage Your Audience & Invigorate Your Brand,” Association for Accounting Marketing (AAM) Summit, AICPA ENGAGE Mary Beth Koester • “Opportunities For CPAs In The Vet- erinary Niche,” The State of Business podcast, Ohio Society of CPAs Abbey Kanellakis • “No Time, No Problem: How Content Creation Can Compete (And Win) Against The Billable Hour,” AAM Summit, AICPA ENGAGE • “Almost Like Magic: Content Creation For The Busy CPA,” webinar, CPAacademy.org WRITING PUBLISHED continued page 16 > By Chris Brinich, senior associate, [email protected] (Dublin office)