Welcome back to our Business Valuation series! In the intricate cogs of business valuation, methodologies are the machines that guide the evaluation process. Market methodologies, in particular, focus on transactions and the multiples they generate. Picture this: two companies down the street from the other, operating in the same industry, both raking in the same amount of revenue and generating the same cash flow. One sold for a multiple three times more than the other. The question arises: What sets them apart? Why are they valued so differently? This month, we take a look into the critical roles that technology and developed systems play in shaping the valuation of a business listing.
Beyond the Balance Sheet: Embracing Technology
Diving into the intricacies, we find that technology can have a big impact on valuation. It’s not just about the financials; it’s about whether a company has embraced technology. Take the example of a plumbing company. Some send out invoices immediately after service calls, seamlessly integrating technology into their operations. On the flip side, others might take weeks to get a bill out the door. Some have a customer portal where customers can access all documents/invoices/photos, etc. of the jobs performed. Others do everything by hand.
Technology as a Value Driver
At Transworld of the Gulf Coast, we understand that technology and developed systems are more than just operational tools. They’re significant value drivers. The dichotomy between the ‘blue-collar handshake’ businesses and those with well-documented systems is evident. It’s the difference between chaos and order, between the inefficiency of manual processes and the streamlined workflows powered by technology.
Documenting Processes: The Unseen Advantage
How a business owner navigates processes, from sales to fieldwork, is a crucial aspect of valuation. Are systems well-documented? Are there processes in place for new hiring or industry-specific tasks? These questions become pivotal in assessing the ‘turnkey’ nature of a business — its readiness for a seamless transition.
The Technological Tapestry
We see businesses operating on spreadsheets and manual tickets with no accounting or inventory software compared to those leveraging sophisticated and integrated enterprise systems. The impact of technology on businesses is more than surface level — it’s about staying relevant, efficient, and, ultimately, sustainable. It can be the difference between a traditional business that is linked to current owners and a turnkey operation that can be transitioned without missing a beat. The more seamlessly a business integrates technology into its operations, the more attractive it becomes. While technology might not be a deal-breaker, it certainly reinforces the price or prompts a reevaluation of the effort required for process creation.
Pitfalls and Opportunities
There is a delicate balance in factoring in technology and developed processes. Some businesses intentionally remain ‘low tech’ to keep their workforce content. Yet, in doing so, they might be jeopardizing their value in a market that increasingly values efficiency and modernity. The example of a business that resisted technological evolution only to face challenges later paints a cautionary tale.
Conclusion: Navigating the Digital Frontier
In a world where businesses are increasingly defined by their technological footprint, the impact on valuation is significant. The story isn’t just in the numbers; it’s in the digitized processes, the efficiency gains, and the adaptability to modern business operations. As you evaluate your business, ask not just what it’s worth today, but how well it’s positioned for the technological landscape of tomorrow.
Stay tuned for the next installment in our Business Valuation series, where we’ll unravel yet another layer of the art and science of valuing businesses – demonstrating the realization of economies of scale and scalability. Until then, embrace technology, document your processes, and chart a course toward a more valuable and forward-thinking business.
If you need help evaluating your technology and/or your processes and operations, we can help you prepare so that you can maximize your valuation when the time comes to consider a sale.
About Transworld Business Advisors of the Gulf Coast
Transworld Business Advisors of the Gulf Coast covers the northern Gulf Coast along the I-10 & I-65 corridors with special emphasis in Mobile, AL to New Orleans, LA. We strive to be the top business brokerage firm in the area and leverage our extensive experiences and our international Transworld platform to run confidential and competitive business sales processes. We help entrepreneurs to buy a business or sell a business, with a focus on helping family-owned and closely held businesses with their strategic plans for the future. Transworld offers a wide range of advisory services to the northern Gulf Coast Region, including Alabama, Mississippi, Louisiana and the Florida panhandle, that are tailored to fit your business needs, whether you’re buying, selling, preparing to sell, or franchising.
If you are ready to sell or would like assistance getting your business ready to sell, reach out today at Gulfcoast@tworld.com.