3 Key Factors That Make a Business Valuable

Intuitively the value of a business should reflect its attractiveness and the generation of profits or dividends for its owners.

The fundamental basis of valuation is that:

• The value of an asset today is the present value of the future cash flows that the asset is expected to provide its owners.

So the value of a business (the asset) is the present value of future cash flows (or “adjusted” net profits).

The typical methods used to assess the value of a business include:

• Earnings Multiple.

• Discounted Cash Flow Analysis.

• Asset or Book Value.

• Return on Invested Capital.

Ideally the valuation range should be arrived at using a number of these valuation methods, and the range should be as narrow as the assessment process allows.

The valuation should be performed with a typical buyer or range of buyers in mind. After all, it is the buyer that ultimately decides the value of your business. The value is never known until the buyer gives you a cheque and the funds have cleared in your account. Until this point the value can only ever be estimated within a certain range.

There are three major assessment criteria for assessing the business value. These are:

1. Is the business transferable?

2. What is the relevant cash flow that the buyer will get a benefit from?

3. How attractive is the business to other buyers?

Is the Business Transferable?

No one wants to buy a business that they can’t operate. If it relies on the owner to bring in the customers, service them and manage the business, there is a big question as to whether it can be transferred to someone else.

Many professional services businesses exist because of the relationship with the owners. If these relationships cannot be transferred, there is little or no value in the business.

What is the Cash Flow?

Cash flow refers to the operating profit generated over and above any wages or salaries that should be paid to the owner. If the owner is working in the business, then they should receive a wage for their efforts. But the business should also generate a cash flow in addition to this wage.

The cash flow can be adjusted to remove the effects of one-off expenses or revenue or non-operating items.

The higher the cash flow, the higher the business valuation.

What influences the attractiveness of the business?

The attractiveness of a business is a combination of the profitability and the key factors that influence its financial performance. These key factors contribute towards the Earnings Multiple. If one business is more attractive than another similar business it will have a higher Earnings Multiple and hence a higher valuation.

Selection of the Earnings Multiple will depend on factors such as:

• Type of business, industry and location.

• Size and profitability.

• Attractiveness of business.

• Demand for this type of business.

• Perceived risk of the business.

• Efficiency of operations of the business.

Understanding the value of your business will allow you to develop plans to increase the value. An experienced professional can identify the key factors in your business that will increase its value and what actions you should take. Knowing the value of your business is the starting point to change it, and is not just for those buying or selling.

Tips for Starting a Landscaping Business

There is nothing like being able to call yourself your own boss and say that you own your own business. However, everyone knows that you can’t just hop into a business without spending a lot of time planning and figuring out how you are going to manage your business.

There are several things that you need to do in order to start a landscaping business:

  • Before you start your business, you will need to have the equipment to do the landscaping. If you already have the money to do this then it will be no problem. A lot of newer businesses take out a loan when they are starting up a new business. It also doesn’t hurt to get a separate bank account for your business. Having separate bank accounts will take away any confusion you might have trying to balance your household finances along with your businesses. Another thing that all businesses need when they are starting a business is to have a business name. A lot of smaller businesses might add their name to their business. Or, if it is a family business, a family name will be added to business.
  • Doing research is the key thing when you are starting up a business. You will want to know what other people are charging for their landscaping work. Since you will be starting your own business and it is new, you will want to be competitive and go a little bit lower than everyone else. Having a lower price than other landscaping companies will draw customers to your business rather than paying for higher prices for other landscapers to do the job.
  • As with any business, you will need to get a list of customers. If you have previously worked in the landscaping business, then you probably already have several satisfied customers that are used to you doing their landscaping already. If you already have older customers, it doesn’t hurt to contact them and let you know that you have started your own business in landscaping. If you are starting out new, then you will need to gather new customers. Advertise your services through word of mouth, posting flyers, making business cards, or evening using social media for getting your name out there. Other good ideas are adding your business’ name to your truck so that people can see your advertising while you are on the road driving. Businesses can also get some new clients by adding their phone numbers to phone books under “Landscaping Services,” in the phone book under the yellow pages.
  • Once you get your clients built up, offer them specials such as a free hour or something for referring them to someone. Depending on your business and how it is going, you might not offer free work, but a certain percentage off for referring other people to your business.

These are just several things that you can do when you are trying to start a business. Owning your own business can be tedious at times, but rewarding as well.

Why a Business Plan Is Important

A business plan grants you access to the essentials required to move your company from concept to creation. It can either make you or break you. Communicating your message in a succinct and clear manner will allow you to attract the executive team, funding, and overall support required to get your business started. Having a business plan helps:

Define the purpose of your business. Having a purpose provides you with a guide for operating your business. It describes the nature of your business, the products and services you provide or plan to offer; and your target market. With this information, you’ll be able to make better decisions and develop strategies that will bolster the success of your company.

Obtain the necessary funding to support your business. When you present your business plan to potential investors, you’ll have the opportunity to determine whether your business has the potential to be profitable. A detailed plan with facts, statistics, and figures will most likely win over investors than one with a vague purpose and sketchy details. A business plan can also come in handy when applying for a business loan. The majority of lending institutions request this information with your loan application.

Prepare you for the future. As your business grows, there will be significant changes taking place. Not only will you have to focus on the business’ expansion, but also how your business will be impacted by the market conditions and trends at that time. The plan also serves as a snapshot of your business during different phases. The initial draft may consist of your projections for the business over the first three to five years. Such projections may change after your first year based on your business’ performance. These adjustments would provide you with a platform for building your business. You can refer to certain sections of your plan to examine its past history, trends, and statistical changes. With this information, you’ll be able to pinpoint the underlying causes of the ups and downs in your company.

Establish the roles and responsibilities of directors or officers. Your business plan provides information about your company’s organizational structure. This information will help you to keep your business on track in terms of its goals, operational milestones, and sales targets.

Increase others interest in your business. Your business plan can convey your goals without you verbally expressing them. If you have a business meeting with persons who are interested in becoming a partner of your business or applying for an executive level position, your business plan will demonstrate the potential of your business and they’ll eventually become part of your team.

Determine the resources required by your company. Your plan will highlight your company’s financial standing. This will allow you to make purchasing decisions regarding any equipment or supplies required. The decision will be based on the long term use of the said items. If the item in question will be beneficial to the company in the future, purchasing may be the most feasible option rather than leasing.