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An easy way to determine your company’s value

by on June 15, 2016

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Something new is coming and it will affect your privately held business, whether you want it to or not.

Every CEO will at one time or another ask the question, “what’s my company worth?”

Wouldn’t it be great if there was a a simple, trustworthy way to understand and unlock that value.

Now there is.

Think Zillow or your FICO score but for private companies.

Allow me to introduce you to TEVO, which stands for Total Enterprise Value Opportunity and the TEVO Score.

It’s a score that measures risk, including future risk, from the eyes of an investor, lender or buyer using predictive analytics.

What is a TEVO Score? 

Like Zillow provides an easy way to get an estimate of your home’s value or the value of a home you’re looking at buying online and FICO measures your personal credit worthiness, your TEVO Score measures your company’s viability. It uses a predictive analytics engine blending financial and non-financial data to measure the gap between your company’s present and potential value.

The TEVO Score identifies the strength of future earnings, the quality of your infrastructure and base business, the depth and effectiveness of the management team and operations, the value of intangible assets, and the value of the customer base.  It identifies revenue, margin, market and product opportunities.

A TEVO Score is the only standardized way to determine your company’s multiple and will be used by institutions to make decisions about your company (i.e. banks, lenders, insurance underwriters, etc).  The score spans five key performance indicators:

  1. Financial Analysis – The strength and reliability of the numbers
  2. Business Systems and Processes – Infrastructure and the ability to deliver
  3. Base Business – The diversification of customers and sales force
  4. Management Team – Reliance on the Founder/CEO and overall strength of the leadership
  5. Opportunities – Growth, margin, integration and expansion

Double Your Value

If you want to Double Your Value is it easier to double your revenue/profit or double the multiple?

Yep, it’s easier to double your multiple. Keep in mind that it’s the multiple range that’s important, not the score.

How is my TEVO Score related to my company’s multiple? 

Your TEVO Score determines your company’s multiple within your given industry range. Changing the direction of the multiple of your business WILL have a significant increase in your company’s value.

The TEVO Score provides CEOs with insight into the factors that impact the multiple, or, the potential sale price of their company.

Once CEOs understand their TEVO score, they gain confidence and control in business interactions and negotiations, strengthening their position and widening their opportunities.

How will the TEVO Score be used?

It can be used in lending, partnerships, insurance, HR (think management incentives for an improved TEVO score) and many others. Let’s look at how TEVO would be used in M&A.

TEVO can help both buyers and the sellers. Think about the process now.  If I’m the seller I have to hire an investment banker or business broker to give me an idea of the value of my company.  How much do you think that costs?  They’ll look at various comparable sales and provide an estimate of the range for your multiple.  In software today that is a multiple of revenues but it could also be a multiple of EBITDA.  You do the math and you get an estimate of value.   Wouldn’t it be easier if I could just go online and get an idea of the value of my company compared to others in the same industry? Yes it would.

Now from the buyer’s perspective.  Say I’m looking at buying a private company in a particular industry.  I may even hire an investment bank to help with my research.  That won’t be cheap.  Now I have a list of potential target companies to buy.  How do I evaluate each company?  I have to do research, connect with each company, get information, and then do my own valuation.  Wouldn’t it be easier if I could just go online and look for companies within a particular valuation range?  Yes it would.

What you can do to improve your TEVO Score

The great thing about your TEVO score is that it also shows you what your company could be worth.

The TEVO Score quantifies the opportunity gap between a company’s current and potential value. As a result, CEOs can understand their probable sale price by learning the current and potential multiple, which is the estimated enterprise value based on revenue or EBITDA. Next, CEOs can work with a trusted advisor to gain additional insight into how to strengthen their business.

Using the TEVO Score as a starting point advisors, like me, can help CEOs understand why there is a gap between what they’re currently and potentially worth, and how to best move forward to narrow that gap.

Advisory services also help reduce risk and identify options for how to strengthen the business. By working with an advisor, CEOs can spend time on the issues that most impact their business using measurable metrics and actionable insights.

Together, the TEVO score, detailed reports and advisory services provide the most relevant and actionable three-dimensional picture of a company’s value. CEOs learn:

  • Where they are: The company’s current multiple and performance across the five indicators
  • Where they could be: The potential multiple
  • How to get there: Changes that need to be made in the business to increase performance and reduce risk across the five indicators

You can turn your good company into a GREAT company.  The information is available at a reasonable price.

p.s.

If you’re wondering how you build a company that you can sell for a premium, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.http://www.therevenuegroup.net/free-offer.html

 

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From → Strategy, Valuation

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