Fiona Hansen – Business Valuations: Buying a business? Don’t over-pay! Selling a business? Don’t settle for less!

TRANSCRIPT

Audio – Ep 11 Fiona Hansen – Business Valuations: Buying a business? Don’t over-pay! Selling a business? Don’t settle for less!
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JD: Business valuations aren’t just for buying or selling your business or for dealing with mounting compliance issues, they offer powerful insights that many people overlook. A skilled valuation is like a health check for your business, a unique lens that reveals how you’re performing, not just internally, but against the competition.

It highlights the #CriticalFewActions™ that can make the most significant impact. In today’s episode, I’m thrilled to welcome Fiona Hansen. A seasoned expert in business valuation with over 20 years of experience across three countries. The owner has valued a range of high profile businesses across the industries like mining, property, biotech, and manufacturing.

Her expertise even extends to intellectual property, a skill that’s in high demand. Join us as we dive into the art and strategy behind business valuations and explore how they can transform your business perspective.

Welcome to the #CriticalFewActions™ to improve your business podcast. I’m John Downes and I’m here to help you cut through the overwhelm and prioritise what matters most to improve your business. Let’s get started and discover the #CriticalFewActions™ that have the biggest impact.

Fiona Hansen helps business owners to value their business. She’s widely recognised for her expertise over the past 20 years in three countries in corporate finance, and particularly business valuations. Fiona’s valued a large number of high profile businesses, including industries such as mining, engineering and infrastructure

property, retirement, living, biotech and manufacturing. And she also provides valuations on intellectual property, a skill that’s highly sought after by companies in this current time, when the accounting standards are requiring us to value more and more aspects of their balance sheets. Fiona, welcome.

Fiona: Thank you, John. It’s a pleasure to be with you and, uh, have this fireside chat.

JD: Fantastic.

Fiona: So, Fiona, how did you get into valuations? I’m glad this is a fireside chat, John, because pull up your chair. It could be a long, long story, but, uh, it’s a bit like, uh, looking for a boyfriend, uh, John. Keep your options open.

I started my career in audits. And then I moved into just by default when corporate finance was coming onto the scene, and I started off doing, uh, uh, financial due diligence, uh, and that got a bit boring after a while and I fell, fell into mergers and acquisitions. And again, an opportunity came up for me to, uh, jump into valuations.

When I was in the M& A, I thought, oh, the propeller head sitting doing valuations, no ways, it’s too complicated, too technical, and my brain is not there. But, you know, to be honest, after some 20 odd years doing valuations, I think this is the pinnacle of the corporate finance, uh, uh, profession, where it takes, uh, And draws for the skills from M&A and financial due diligence annual accounting and, uh, audit.

So I think I’ve landed at the top of the Christmas tree as it were.

JD: Ah, fantastic. And so what’s involved in preparing a valuation?

Fiona: I’ll take you back to, your, your time at university, John. Um, so it’s a bit like the Porter’s five forces. You’ve got to be aware of what goes on in the environment, what goes on with the suppliers and the purchases and the business itself.

So you need to understand all aspects of the business. It’s not just the numbers, profitability, the history of the business, where it’s going, uh, what, what the motivators of the management are, those are all things that take. Into account in doing evaluations, I don’t propose to give you a one on one evaluation today, but just give you a bit of a flavor of the things that we need to think about.

JD: So you’re really taking quite a strategic view of the business when you’re looking at it, both its past, but also its future. That’s

Fiona: exactly right. It’s a business is not something that stands still. It’s not an ask block. It’s it’s moving and evolving. Uh, and things change from day to day. Things change within the organisation that the management have got control over and things change outside of the environment.

Take Kodak, for example, uh, things came digital, uh, technology came along and management didn’t change. Change with the times and we all know what happened to Kodak.

JD: Yeah. It was actually quite fascinating. I was working in, , New York State around the turn of the century, 2000

and, there was this digital photography thing was going to be a bit of a flash in the pan and that film was still going to be, uh, a core thing. They had no idea that people were going to run around with phones that were disguised as cameras and, and as opposed to just using, um, the old hardcore technology and infrastructure.

So, why are businesses preparing valuations?

What are the benefits of doing that? What do they use them for?

Fiona: So management require valuations for a number of different reasons and the benefits are if you’re the one side of the coin to keep them out of trouble from a tax perspective or to help them when they’re in trouble.

So I’ll start with keeping them out of trouble. Uh, there’s a lot of compliance likely in terms of the accounting standards. Uh, there’s a numerous, there’s probably seven accounting standards which require, as you mentioned earlier. In your introduction that require valuations to value parts of their balance sheet.

So if there’s a business combination or there’s a financial instruments or if there’s goodwill on the balance sheet that needed needs impairment, those are valuations that need to be undertaken not by the auditors, but somebody or a professional or an expert that is independent of the auditors.

Right.

Fiona: It was also from tax per. Perspective, the A TO and the staff duty revenue officers are expecting valuations to support cost basis for, to, to support what the taxes paid, capital gains tax, small business concession, uh, in and around executive options for tax consolidations so they can mark to market the, uh, the assets that are coming into the tax consolidated group.

Uh, that’s from a tax perspective. And then you’ve got, uh, mergers and acquisitions, which are takeovers on the section 640, schemes of arrangements, and other controlled controlled transactions that ASIC monitors. So those are the public transactions that require an independent expert report. Um, and again, there’s a lot of complications around independent expert reports, but just putting your notice.

And then also on the flip side of that coin, where there are disputes. So if there’s shareholder disputes or disputes with management or, uh, any other type of dispute where there’s a business, uh, the valuation might be required to help unravel and work out what, uh, the, the, quantify the losses or the damages.

that is expected to be paid between the disputing parties.

JD: So I guess that sort of covers off a lot of the statutory and the, um, the accounting standards requirements, um, for valuations. But I guess there’s also, um, Uh, that preparation for exit or a sale event or an acquisition, uh, whereby, um, you know, a business owner is, is perhaps selling something that they’ve built up over 30 years, um, and they’re now being approached by an interested party and, and regardless of what, uh, what, uh, the offer price is, it’s, I think it’s probably vital to the company.

To get somebody independent to turn around and say, okay, well, this is actually what we think it’s worth, which might be more or less, but at least you then know,

Fiona: yeah, yeah, you’re exactly right. Uh, so this is a bit of a tension between the corporate advisors who are eventually engaged to sell the business and the, and the, and the business value is, so we would grow a lot in the sand in terms of the difference between price and value, uh, a value is what you, uh, get process, what you pay.

Okay. Uh, and, um, so, so when we come up with a market value of a business, that is almost, uh, this is what the market would expect regardless who the potential purchaser is, uh, and the, the, the corporate advisor will try and work out what the price, looking at who the potential buyers are and max, uh, My market value to get to a point that’s a maximum price that that potential purchase purchasing would be prepared to pay.

And that’s how they market the business that’s for sale. But the key benefit that I found, uh, when we’re doing that exercises, it’s, it’s remarkable how through our valuation analysis and the information we, we request and the questions we ask, how much a business owner actually learns about their own business.

Thanks. Uh, and I find that’s a key, key benefit when it’s not tangible that, uh, the, the commissioning party or the business value business owner learns a lot more about their business

JD: than

Fiona: before the process.

JD: Yeah. And, and, and probably for the first time really understands what are those value drivers that are actually going to make a real impact, um, on a business valuation.

Fiona: Exactly right. And that’s when you come to a point where what’s involved is a seven step process in undertaking evaluation in terms of our approach. And one of those, uh, um, steps that we usually, uh, take is to present our evaluation to the management, uh, and show them. This is what your financial information is telling me.

Historically, this is where, what your forecasts are telling me. This is what the market is telling me. We put the two together and this is what the value is. And these, these are the value drivers as you quite rightly pointed out. And we can show them and demonstrate if margins were slightly higher or if margins are slightly lower or your revenue was higher growth or lower growth.

Or if you had any working capital issues, these are all the impacts on the value.

JD: Yeah. And, and if my recollection’s not too hazy, I, I recall that when we’re thinking about the difference between the value and the price, um, when we’re looking at a valuation, we’re typically sort of looking at it from the point of view of, of what would a willing, but not anxious buyer, Agree is a reasonable value, uh, with a willing but not anxious seller.

I don’t know if that that framework is still sort of considered of relevance.

Fiona: Well, thank you, John. You’ve just opened a whole can of worms there. There’s a numerous list of different, uh, definitions of value. You’ve got fair value, you’ve got market value, you’ve got fair market value. Fair value for accounting purposes, fair value for legal purposes.

Completely different emphasis on the hypothetical willing buyer in a fair value situation, you actually know the buyer or the seller and you know the circumstances. So you’ve got to take those into account,

but

Fiona: fee market value is typically hypothetical on the one side, the buyer and typical hypothetically on the other side, the seller, but the situation is actually what the situation is.

JD: Yeah, absolutely. And so then when we’re looking at price, then the value that, uh, the price that a buyer is prepared to pay will depend very much not only on what they see the value of the business based on its past performance and its future, his future, uh, potential performances, standalone business, but also.

They’ll be looking at whether or not, um, there are strategic reasons why they’ll acquire it. It might be far cheaper to buy a business in Australia if they’re offshore than it is to go and establish one from scratch. Um, it might be that, um, that, uh, they see that if they, um, and hopefully the idea is that, uh, their 2 and 2 plus 2 will equal 5 or 6 as opposed to, uh, equaling 4 by just adding it on.

Um, and they may well be prepared to pay for some of that, um, that value increment that they’re going to actually generate.

Fiona: Yeah, exactly right. And one, one additional point that is always, it’s always the, uh, the competition. If the, uh, one particular party who’s bidding for the, for the business knows that in the next room, there’s another party which is similar to them, but they’ve got this desperation factor that they add in as well.

Yeah. They pay an extra 10 percent for closing. They want to get the business more desperately than, than, than the other bidder. So, uh,

JD: or they want to make sure that the other party doesn’t buy it because it’ll make them a stronger competitor.

The

JD: reasons are many and varied.

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So tell us about your approach, Fiona.

Can you walk me through a, uh, a client example, uh, of, um, of how you would go through evaluation process?

Fiona: Okay, so let’s paint the picture of a private company that we that we’re looking to value for this particular discussion is fairly unsophisticated. Um, it’s been operating for quite some time. It’s in the engineering services space, um, drawing from from a live example, and it just pays the identity a bit to keep it anonymous.

Um, so we’ve got a seven step process. So what we typically do is we, uh, before we start, we, uh, scope and try and understand thrash out exactly what the scope, uh, of the engagement is. So what, what are we valuing and why? Uh, and it just gets a bit of understanding of where the business is, uh, in this life cycle and what sort of information would likely be available.

Cause we don’t want to go ask for information, which is. It’s totally not there if it’s, if it’s a one man band, we can’t ask for a five year forecast because a one man, one man band type business wouldn’t have a five year forecast. So just get to understand the level of sophistication and what kind of information is available.

Then we send our engagement letter together with an information requirement list, which we’ve tailored. We’ve got a standard list, which goes on and on forever, but we tailor it for what we understand the business might be able to give us.

And

Fiona: that might take a week or a couple of days. For the, for the client to, uh, respond and provide us all the information.

Once we receive that information, we check that we’ve got everything we wanted that we asked for. And if we don’t, then we go back and ask for a bit more or clarification. We don’t expect everything we asked for to be prepared specifically for the valuation. If there’s something that is similar, for example, if they’ve got analysis of sales, but it’s in a PowerPoint presentation, that is fine.

We don’t need. Five years worth of sales in, in, in an Excel spreadsheet. Uh, so we don’t analyze the information, uh, check it, analyze it, see what we’ve got. What does it tell us? Uh, we do our own research on the market, uh, while we’re waiting for that, uh, information to come through, what the competitors are, who they are, what they’re doing, what sort of multiples, what sort of growth factors.

And then we get an, uh, what we call an office report, generally an industry report. And that’s good commentary as to where the market is, how many competitors, what are the stress factors in the industry. So by the time we get all the information, we’ve analysed it for the company. We know exactly where. It sits sits within the competitive framework, how similar it is to the competitors that we’re reading about.

If this is a private company, we line it up with some of the listeds and we read about the listed companies that could be similar, see what’s their pressures and their challenges are, um, and then we go and put To the two together and and do the valuation calculations by picking a capitalisation earnings method or discounted cash flow method and we cross check it with another once we’re comfortable and stress test our valuation, we ask the company or the client for a opportunity to present.

Our findings, so we went through what they presented to us, give a bit of analysis of what the profit and loss they provided us with, and the balance sheet they provide us with, uh, in the forecast, and then we show them the information that we’ve got from the market in terms of competitors. Uh, and then we show them, this is the outcome, show them the valuation calculations, this is the outcome, and this is some of the sensitive, some of the sensitivity analysis we’ve undertaken,

and,

Fiona: uh, while we think our valuation is reasonable, show them the cost check, uh, and hopefully we’ve brought them along the journey.

Uh, it’s the last thing you want is surprises, but sometimes, you know, the, the valuation is higher or lower than the expectation and as we manage the client’s, uh, expectations and once they’re happy with the, the, the valuation outcome, then we put pen to paper and draft the report.

JD: Sure. And, uh, and do you, do you seek information from the market for similar transactions?

Fiona: Yes, that’s, that’s part of our research, John.

JD: Yeah, we’ve

Fiona: got, we use capital IQ and capital IQ will give us, um, details of competitors trading multiples. So from, from the share prices, and then we take those competitors and we do an analysis and research for transactions they might have undertaken in the last, um, And we’ve got to be careful in terms of the timing because we’ve got, uh, the COVID.

So anything happened pre COVID or during COVID are not comparable and even post COVID is not comparable. So recently we only look at very recent transaction post COVID because anything we compare to pre COVID.

Yeah, the

Fiona: sentiment in the market is quite different to what we’re looking at now.

JD: Yes, COVID’s, COVID’s really thrown a fly on the ointment in that regard.

Exactly

Fiona: right.

JD: Yeah. And so, so what are the sorts of multiples that you’re seeing at the moment, say for businesses in the $10m to 50m turnover range or 10 to 500 million turnover

Fiona: range? Thank you, John. You’re asking a few curly questions. Yes. I’ve always got to put a bit of a caveat around my answer.

So multiples in times are different. At different points in time and even multiples within industries are different. So in the auto parts manufacturing space, those multiples are very different to SaaS type businesses or services type businesses or even mining.

Yeah, because

Fiona: they’re all facing their own challenges.

And, uh, yeah, COVID, uh, has, and technology changes has put, uh, uh, uh, uh, great challenges on businesses and given different opportunities to different businesses. So it’s a hard question to answer specifically.

JD: Yes. Yes. Um, well, okay, so I’ll take that on, on board, but I won’t let you off the hook. So, so what I, what I, uh, typically heard, I guess, over the last 3 or 4 years, and I’m not a valuations

expert,

JD: I’m not an expert at all, um, but the sorts of numbers that, that I was talking about, that I was talking about and hearing about for, for, Average performance businesses sort of in the under 50 million turnover range was that they’re sort of thinking about 4 times EBITDA, earnings before interest and tax depreciation amortisation, um, and what I’ve noticed over the last 18 months is that it appears that Australian, good Australian businesses Uh, becoming quite attractive to multinationals for whatever reason, whether it’s capacity expansion or whether it’s establishment of a hub for, for Asia Pacific or for whatever else.

Um, and so some of the, some of the numbers that I’ve heard about have been in the sort of the 6 times. So, so obviously this podcast is not about providing, um, individualised advice. It’s just talking about, um, some of the, some of the perceptions that we’re seeing in the market. Place at the moment, but what are you sort of saying around, um, non service, non SaaS businesses, for example?

Fiona: Uh, thank you, John. So in terms of looking from a from an investor’s perspective, an investor would always pay a higher price for a for a share in a company, which has got good growth,

good

Fiona: size, good diversity and good, good, good profitability margins. And that can bring you up to a multiple of 9, 10, 12.

And as you say, Price versus value. Uh, companies overseas are looking more to Australia because I think we’ve all been stung by relying too much on Russia and too much on, on China. So, uh, Australia for a long time has been ignored. Uh, um, there are a few gems here in Australia and a few good businesses that the, the world is starting to look at.

And when there’s supply and demand, um, it, it ratchets up the. The multiples that have been paid in transactions, companies overseas buying here in Australia. So, yeah, we’ve seen some, some of the, the, the companies which are riding the ESG wave, for example,

have

Fiona: got a good handle on the ESG are very attractive to, to companies overseas, and you could get a 15 times EBITDA multiple.

JD: Yeah.

Fiona: Yeah.

JD: Interesting. How are services businesses valued differently from the, from, say, an industrial, a manufacturer or a producer and so on?

Fiona: So manufacturing businesses are valued differently because probably they have a much bigger asset base. So there is some security around, if you’re thinking from a bank’s perspective, So Yes, but also from an equity perspective, uh, debt can be secured around a plant.

Machinery stock and the like, where a services business doesn’t have significant investment in plant and equipment and, uh, inventory, it’s just the people, it’s just

JD: the

Fiona: people. So, when they

JD: say people are our greatest assets, they don’t realise actually how, how, how substantial that asset is.

Fiona: Exactly right.

So when you distill the valuation down to what the level of goodwill is and what the level of intangible assets are, they’re far greater in a services business compared to a manufacturing or a business that has got a lot of hard assets.

JD: Yeah. And so how does that then, um, how is that then reflected in the, in the valuable valuation multiple or on the denominator?

Fiona: Yeah. So, so, uh, you’ll probably find that, uh, services type businesses are able to be a lot more profitable because there’s not, uh, the, the required rate of return on, on the hard assets that, that you would on a manufacturing businesses. So you’ll, and they are much more agile, uh, for a, uh, services business to pivot and change to the demands of the market.

It is a lot quicker than, let’s say, a, a, a company manufacturing order parts. Uh, a lot more investment is required for them to change the type of order part that they’re making for changes in the market. So a business like that would have a lower multiple compared to what, uh, uh, multiple com uh, commanded of a, um, services type business.

JD: Um,

Fiona: okay.

JD: And then, um, something I’m still, uh, uh, perplexed about is the valuations, uh, around SAS businesses, because, um, I guess for the last X number of years, um, the valuation multiples haven’t been on, haven’t been on profitability, they’ve actually just been on revenue or subscriptions or, uh, I’m not quite sure what, um, what, What’s peculiar about a SAS business and what sort of, uh, multiples are you saying there?

Fiona: Uh, John, I think you and I are experienced enough. I’ll say experienced enough because we probably both all recall the, uh, the, the dot com boom and dot com bust. So, uh, yeah, maybe the value, I’m a little bit more skeptical and I’m actually seeing the SAS at the moment running off. A bit like a dot com era, so where businesses are services and a subscription or subscriptions and trying to, uh, work to try to capitalise on clipping the ticket, as it were, with a lot less effort getting getting revenue through subscriptions and then having a core business.

I’m sure there are areas in a business that’s going to crack. In terms of to what level of subscriptions or what level of service with one core service. Uh, something, something’s going to break somewhere, um, and that’s one thing. And the other thing is investors in businesses at one point start becoming impatient and want profitability.

They want dividends that they want capital growth. They don’t want growth in share price that could quite easily tumble and drop tomorrow.

JD: Right. I’ve been working with a business that’s is a software as a service business, operates in multiple countries and. Has got to a nice sort of turnover level of around about, um, uh, 8 to 10 million dollars.

Um, and, uh, and I understand that the valuation on that at the moment is running around 6 times revenue and, uh. And that’s a, that’s a, a, um, uh, a nice number. Um, obviously their concern is, okay, how do we, how do we scale our revenue from, from, uh, 8 to 10 to 80 to 100, um, and they’ve got a path to do that.

Profitability is not there. They’re probably. Just on break even at the moment. Um, and so I, I sort of look at that, you know, from my very old valuations experience. My valuations experience was back in the, in the 90s. And so I’m totally not an expert, but I sort of looked at that and thought, gee, that’s, uh, that’s not what I would have expected.

But, um, uh, that seems to be the standard market right at the moment.

Fiona: Yeah, you, you’re exactly right. There’s, it’s typical for unlicensed and private SaaS type businesses, but the research we’ve done in terms of listed SaaS type businesses, they starting to mature and they have a level of profitability and, uh, a private company, which has got no profitability, if it wants to withstand the market and an RPO.

As I said earlier, investors at some point become impatient.

Yeah.

Fiona: And absolutely cain the company. If it doesn’t deliver profits at one, one stage or another, SAS business or not SAS business.

JD: Yeah. Yeah. And, and do you also see a potential change in the market? Um, the general market dynamic over the next couple of years as we start to digest Um, post COVID, uh, inflation, uh, rise, rises, interest rate rises, um, uh, over and under employment, um, issues, um, uh, the, the fallout from Brexit.

Um, and the uncertainty with regard to China and Russia, are you sort of saying that that also might be a driver towards a profitability focused value as opposed to a sheer revenue or a subscriber based focused value?

Fiona: Yeah, exactly. Exactly right, John. If you, if you look at the history of any listed company out there, uh, um, investors inevitably want profitability, they want, they want dividends and they want capital, real strong capital growth rather than riding the bubble.

At some stage, investors will become skeptical on a business that never generates profit and is hungry in terms of, of investment. Right. Uh, but we’ll say that those companies are needing more and more capital to, to, to grow their revenue. Um, and there’s nothing, no profits within the business that have been generated to drive that growth internally.

Uh, and at some point, I’ve seen it often, investors get sick of putting their hands in their pockets.

Yes.

Fiona: To, to, to contribute. Capital will contribute equity for the company to continue to grow when there’s nothing coming back.

Yeah.

Fiona: And then you’re right. I think at some stage, the SESTA businesses will see the light of day.

Um, they, there are a lot of quality businesses out there. I think, um, there’s challenges on all businesses, not only SAS businesses, as you mentioned, that the, uh, any business relying on, on electricity and gas, ESG, wage and labor shortages. These are impacting businesses across the globe in all industries.

In different ways, and it’s how management and the directors resolve and manage these challenges that will get them through.

JD: Yeah, interesting. So let’s shift gears. So, so we’ve talked a bit about how you go about preparing evaluation and some of the, some of the influences of value. And we’ve also talked a little bit about, uh, about multiples.

What? What could go wrong when you’re preparing a valuation?

Bring a smile to my face, John. No one generally asks me what goes wrong in undertaking a valuation.

JD: Well, you know, the way I sort of look at, at this when I’m, when I’m talking with our experts, um, you know, we’ve always got the opportunity to do well, but, but we often actually learn also from the mistakes that we made or the, or the, the things that don’t go so well.

And, and I’d like, uh, uh, I’d like people to understand, um, what it takes to, to have a good engagement, and how they can contribute to it being successful because it’s not just the professional.

Fiona: Okay, all right. Yeah, I might answer your question. If you don’t mind looking firstly at the value and pointing at a few things that the value wouldn’t do right and the client and then the information.

So maybe we put it on those 3 buckets. Okay. So let’s start with the value at the value. Can may not be independent. So the evaluation outcome might be skewed. The value might be influenced too much by management or the commissioning party. So they might not be able to, or they provide an evaluation opinion that they don’t believe.

Yeah,

Fiona: um, the value, it might not be skilled, they’re helping out a friend doing evaluation, but they’re not might not have sufficient skill or expertise to do the valuation and they might be not do, they might not do valuation day in and day out. So they don’t know the nuances and they don’t know the industry trends.

So, um, The valuation product might be substandard at the end of the day.

Yeah, yeah.

Fiona: And that is very dangerous, as I said earlier on, when a lot of valuations are for compliance purposes. If they go to the auditors, they might, that a substandard valuation will be kicked out.

Yeah.

Fiona: Or if the ATO gets a substandard valuation, that can also cause all sorts of problems for the client.

And if you do a substandard valuation for an independent expert report, ASIC, you’ll cop your Roth with ASIC. Yeah. So, so make sure you appoint a value that is sufficiently experienced. And, uh, I’m a, I’m a business valuation specialist, so I’m accredited with the CAA and ZED. Uh, we’ve got, uh, accounting, uh, standards that we’ve got to comply with, APS 225, which is the professional standard.

And then you’ve got the ATO guidelines, Which ATO puts out, which you’ve got to comply with if you’re doing a tax valuation. And ESSEC has got their guidelines as well. The, uh, regulatory guides that they put out from time to time. Regulate, regard 101, which deals with all sorts of, uh, transactions in independent expert reports.

So you’ve got to be aware of those, of those, uh, standards.

Uh,

Fiona: okay. Then let’s, let’s go to the information that you, you obtain. So the, uh, value needs to be quite flexible. Cool. Uh, and, uh, nimble, I suppose, in terms of the information that, uh, they presented with, because it’s, it’s not, it’s not by textbook.

Sometimes the, the information we get is, is not, not ideal, but we’ve got to do what we’ve got to do, uh, and, uh, deal with it the best we can, uh, within the evaluation methodologies that we can use. So if, if. Information is inadequate in one way, then you need to do extra analysis to shore up and give, give yourself sufficient confident that the analysis, even though it might have gaps,

JD: that it’s,

Fiona: uh, it’s telling the right story.

I’m not understanding the information applying the wrong methodology will all give you. We’ll all provide the wrong app, the outcome, uh, having, having, uh, getting back to your value as well, having the, uh, the, the managing value, right? Let’s say that we work in teams, so I have a team of about three or four juniors that work with me.

And, uh, it’s always ideal to have the senior value involved throughout the process, so that if any questions come or any issues arise, that they can be resolved. Quickly, and then, um, the team doesn’t go down the wrong rabbit hole, as it were, in terms of working out the valuation. So getting back to the information, it might not be, it might be inadequate, it might be insufficient.

Uh, but the sooner you either deal with that and talk to the client about it or have a way around. The last thing you want is a valuation exercise to drag out months and months and months because the valuer, uh, is, uh, for one reason or other, hasn’t approached the client and said this, this is the situation.

This is the problem. This is how we’re going to deal with it. They just try to be resolved on their own without getting the client involved from a client’s perspective. I like a client to be involved in the process so they can understand where we’re going. Because the last thing I want is to. Drop down a fully signed valuation report on their desk, and they don’t know where they don’t know where the information come from, how the information was used, and how the valuation came about based on what was provided because they just don’t know.

didn’t know the process and, and didn’t understand all the steps we were taking all the way down the chain. So yeah,

JD: a lot of things

Fiona: going on, a lot of things can happen along the way.

JD: Yeah. But there, they’re the things that are good for both parties to then go out against really from the start. So, so that um, I think it’s really, really useful for understand we’ve talked about, uh, value drivers in the past.

What are you seeing as the core core drivers of improving the value of a business?

Fiona: Okay. I think this comes down to, um, uh, management 101, uh, John in the financial financial discipline. It’s, uh, getting understanding of, of your revenue growth and where your business is going and having, having, having a five year plan, uh, for your business.

And knowing exactly how that that that growth translates into profitability and keeping keeping the housekeeping as tight as possible. Your day’s data is your day’s creditors and your inventory, uh, turnover. Assuming you’ve got inventory, uh, and if you’ve got, um, hard assets that you’ve leveraged them the best way you can.

So you’ve tightened all the screws, like a good running engine in a car, John. Uh, if, if, if you know how your engine is running and you can hear when there’s a squeak or a tweak and you, and you, and you rectify that, the same in the business. If you keep everything tight and you’ve got a good handle of where things are going, uh, and where things are, and trying to improve your business.

All

Fiona: the way so that, uh, profitability is, is max, maxing out, you taking every opportunity to grow your revenue, you’ve got good staff, you’re managing your staff, um, you’ve got a stable business, um, yeah, that all leads to a good valuation outcome.

JD: Absolutely. And so I guess to wrap up, so if I’m leading an organisation, um, what #CriticalFewActions™ should I do tomorrow if I do nothing else?

To get a valuation ready that will help us. Be successful.

Fiona: Okay. Thank you. Thank you for that, John. So is this a bit of a kudos for myself? Yeah. The first thing I’ll say is ring, ring an expert valuer and, and understand the process. If, if anything more you want to take away from the session today. Uh, they’ll explain to you the information that you’re typically required to value your business.

Um, but if, if you don’t do that, but if you do do that, uh, you, I should suggest you also have a good handle and understanding of the history of the profitability of your business and, and, and a forecast. So put together a five year plan. Uh, I understand it’s very difficult to go more than one or two years out, or even 18 months out in the current environment, but, uh, give it a crack as, as we all do from our personal goals.

Yeah. Uh, the business should also have a, a, a goal. Uh, you may or may not achieve it in five years, but at least have a bit of a, a map roadmap of where you want to take the business.

Yes.

Fiona: Uh, and, and have that clearly articulated in your mind, assuming you’re the business owner. Um, so you can have your elevator pitch as to what your business is all about.

That’s

Fiona: probably my, my key tips on how to get the boat the best out of a, uh, a valuation, uh, when, when you require one.

JD: Good, good. Well, Fiona, that’s been absolutely fascinating. I mean, I did some valuation work, uh, many, many years ago, and I can see how, how, Uh, it has become, uh, both more regulated, uh, more organised, uh, and much more sophisticated.

So this has actually been a really good education for me. Um, thank you so much for your time, Fiona.

Fiona: No, thank you, John. Yeah, you make me, uh, when you, when you say that. I remember my first valuation back at Deloitte, uh, when I in South Africa and we had this little table that we had, uh, for uh, this is the revenue, this is the profitability, this is the multiple.

And that’s how we did our valuation . So yeah, we’ve come a long way. We come, we certainly have.

JD: Yeah. Excellent. Thank you so much for your time.

Fiona: Thank you, John. It’s been my

absolute pleasure.

Fiona: Super.

JD: Thanks for listening to the #CriticalFewActions™ podcast. Don’t forget to subscribe where you listen to podcasts. Follow us on LinkedIn for more insights and share the show with other business leaders. Stay focused, take action.

The #CriticalFewActions™ podcast, including show notes and links, provides general information only and is not individualised business advice, nor can it be relied upon as such. You must take responsibility for your own advice, decisions and actions.

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