December 2018 eNewsletter

My Company is Only Worth That Much?

Michael Ella, CPA, CEPA, Director of Family Wealth Consulting, KeyBank

Business Owner: My company is only worth that much? That’s not what I have been told before. Why?

Value Advisor (CEPA): When you hear values thrown around from people who don’t know a lot about your business, they typically generalize, and they give rule of thumb, which can be misleading.

Business Owner: But I need more to be able to retire!

Statistically, 80 percent of businesses put on the market do not sell, which is alarming considering we are in a seller’s market. Among the most common reasons are:

  • Unrealistic value expectations
  • Owner dependency
  • Inertia
  • Belief the business is ready to transition
  • Customer concentration issues

Let’s consider the risk of unrealistic value expectations for a moment.  When we talk with business owners, only on rare occasions does an owner underestimate the value of the business when compared to the valuation determined by any mergers and acquisition advisors.  This is primarily because owners far too often are unable to be objective with regards to their own company, where they have worked very hard to build and grow for 10, 20, or even 30 years or more.  For this very reason, it is imperative for owners to seek the perspective of an objective third party (an educated value advisor), who can and will look at the business through the eyes of a hypothetical buyer.

Unrealistic value expectation issues often stem from an owner hearing about a “multiple” that they feel should be applicable to their business.  Though there are many different valuation methods, a very common method involves the use of a “multiple” that is applied to some of the company’s key financials to determine the value of the company.  Most commonly, a company’s normalized EBITDA (earnings before interest, taxes, depreciation and amortization) will be increased by a certain “multiple” to determine a valuation for the company.

Loosely applying a multiple they have heard about can be one of the worst things a business owner can do, providing them with a false sense of what the business is worth, making it difficult for them to be open to other thoughts about what the company is REALLY worth (as determined by a valuation expert), and leading to an unwillingness to sell at market values.

Note, valuation multiples are typically really an average range for a specific industry or type of business, with both a low and high end of the range.  Determining that range of value takes much more analysis than simply knowing your company’s normalized EBITDA.  It is necessary to understand the strength of your management team, strength of your value proposition, growth plan, historical growth, customer relationships, owner dependency, barriers to entry, strength of brand, among other factors, to more accurately determine where within the range your company may fall.

It's important to understand that most companies trade within this range of values.  Understanding where your company may fall within the range can be invaluable, providing a benchmark from where the business owner can continue to build and grow their value, identifying the potential value gap between the current value of the company and what the value could be if the owner incorporated a value optimization process, and providing a data point to be included within an owner’s personal financial plan to ensure there are enough assets to meet their post-transaction financial goals and objectives.

When you hear of “multiples,” be aware of their relevance to you, your company, and your specific situation.  If you do not know how to get started, or what your first step should be, education is the answer. Educate yourself on how businesses are valued, and more importantly, how a hypothetical buyer would use information to reduce the value of your company.

Although owners do not necessarily need an expensive valuation to have a realistic idea of where they stand, if you are serious about determining the true value of your company in any potential sale, consult with an expert in valuations before drawing your own conclusions.

Nominate the “Rising Leaders” in Your Family or Private Business

Carol Butler, President, Goering Center

At the Goering Center we frequently talk about buoyancy in the economy and how we so often hear “I don’t know anyone who isn’t doing well right now.” When business is going so well – and we are so busy - we often don’t take the time out to develop our future leaders.

In any business, family or private, cultivating bench strength is critical to long-term success. By investing in a rising generation of leaders we lay a foundation for succession, and by acknowledging the accomplishments of these rising leaders, we create highly engaged and motivated teams. These new leaders shape the future of our companies and collectively grow our regional economy.

To demonstrate its continued commitment to this region’s future generation of leaders, the Goering Center will again honor a “Rising Leader” at its annual Family & Private Business Awards at its annual awards celebration on September 10, 2019.

All Family & Private Businesses Now Eligible to Nominate a Rising Leader

Our annual nomination process begins in November, 2018, and will continue through July, 2019. Nominations submitted by the last day of every month will be considered for selection on the following month. An independent panel of judges will select one semi-finalist from the pool of nominees, thus identifying 9 semi-finalists this first year. Semi-finalists will be chosen for their demonstrated success advancing one of the 10 Best Practices of enduring family and private businesses

The Goering Center was established to serve family and private businesses in the Greater Cincinnati region who are committed to creating a better future. Therefore, all family and private businesses are eligible to nominate a rising leader -- you do not have to be a Goering Center member to participate. Nominees should be identified as a future leader in your organization, or on a path of ownership succession. Most importantly, they must have demonstrated success advancing one of our Ten Best Practices of Family & Private Businesses.

Each month, the Goering Center will showcase semi-finalists in our publications and live events. By publicly acknowledging their accomplishments we will help establish them – and the companies they work for – as Rising Leaders in Greater Cincinnati’s business community.

To nominate your Rising Leader, click here.

Registration Underway for 12th Annual Leadership Development Institute

Goering Center Article

While some among us are natural born leaders, most of us benefit from training and development. And while all family and private businesses need to develop successors for key roles and potential ownership, most do not have the internal resources to build their leadership bench strength. That’s where our Leadership Development Institute comes in. Since 2007, in partnership with Leadership Excelleration, the Goering Center has “graduated” nearly 400 individuals from this comprehensive program, instilling self-awareness that helps them maximize their leadership potential in ways that optimize their company’s performance.

The Leadership Development Institute (LDI) consists of 11 half-day sessions. Each session focuses on a particular aspect of leadership:

  • Understanding self
  • Working with others
  • Building teams
  • Problem solving

Session topics include:

  • Strength-based leadership
  • Leadership effectiveness and personality preferences
  • Performance coaching
  • Relationship management
  • Team facilitation and development
  • Employee engagement
  • Leading change
  • Problem solving and decision making
  • Strategy and performance alignment

Want to Learn More?

The Goering Center will host candidates for the Leadership Development Institute at a Complimentary Overview Breakfast on January 30, 2019. You can register for the Overview by clicking here. To learn more about LDI, contact Steve Hater at 513-556-7896 or