Why One Expert Compares Your Business Value to a Vital Sign
Operators often don’t know the true value of their business.
“It’s common for that to happen, because you really don't know how to gauge it,” says Joe Thissen, senior vice president for sales at AutoCenter Sales in Minnesota. “The numbers change all the time.”
Acquisitions were a boon in the post-recession years, Thissen says, because interest rates were kept low. But as rates started to climb, businesses might anticipate more money going toward debt service and a valuation could change as a result.
A valuation is more than just a profit-and-loss sheet, and it’s more than just a property assessment. It’s an evaluation of the moneymaking forces in your business and how outside market factors affect it.
And two quick lubes with similar car counts of ticket averages might get different valuations. Thissen says that each operation is a little different, so it’s important to have access to the widest amount of market data possible to get the best valuation.
“To a large degree, it’s a little bit of financial diligence and it’s a little bit art to putting that number to the value,” he says.
If you hire a professional to produce a valuation, they’re going to want to see paperwork.
Thissen says that it’s ideal to update your books on a monthly basis. But it shouldn’t just be a profit and loss report that would stretch hundreds of feet if printed or so short that it doesn’t list the data needed to understand the operation. The paperwork should be thorough but also refined with no mystery expenses.
“The best thing that you can possibly do is categorize correctly and make it clear to understand what those things are,” Thissen says. “What that will do is allow other individuals to look at it and get it.”
While the numbers are your own, refined recordkeeping should look about the same as any other business, Thissen says.
Having clear records also make it easier for an outside party to find hidden value in an operation. It’s common for businesses to have a working operational structure that’s worked for years but hasn’t been updated.
“After 20 of 30 years, you have certain ways that you do things. And maybe you haven't added in that extra service,” he says. “It’s hard to capture that value, but it does help to market and discuss those opportunities.”
After all, the person or firm conducting a valuation isn’t just tallying up your assets. They’re looking for the potential in the business as well. Thissen says his strategy is often a deep dive into a client’s leases, financial reports and operations.
Any part of the business that factors into profit and loss is part of a valuation. But that’s not all. Part of the artful valuation that Thissen describes is anticipating market forces and how they affect the business.
When it does come time to sell, a valuation helps the owner know when the iron is hot.
That could take a while for conditions to align. Thissen says he’s managed deals for 800 quick lube shops, and it’s not always a short-term relationship.
He says he worked with a recent client for 10 years.
“We talked on a regular basis, so he had a good idea what those values were,” Thissen says.
The valuations became the vital signs that helped Thissen know when conditions were right to make a sale. It starts with a report card—your P&L—as the baseline.
“You have to really dig into the data to know where that true bottom line is.”