2020 Was a Tough Year, That Means It’s the Perfect Time for – a Valuation?

If you’re like me, you’ve heard all you need to hear about mask-wearing and social distancing and are ready to get on with business. For the savvy business owner, this might be the perfect time to engage a valuation expert (sound of needle scratching record!). If you’re not planning to immediately exercise your rights under a buy-sell agreement, make gifts to your descendants or to charity, reward high-performers with incentive packages, take out a new loan, sue for divorce, break up your partnership, defend an audit, or sell your business why would you need a valuation – especially now?

What if, along with an objective look at what your business might be worth to an outside buyer, the exercise helped you make better decisions? What if the exercise helped you support and strengthen the areas where your business is weak and better capitalize on its strengths?

My friend Shina Culberson, owner of Quist Valuation, points out “It’s not just the numbers. There are a lot of qualitative, intangible aspects, like employee retention, culture, and communication, that drive value.” How are decisions made? Who gets a say? Shina and the Quist team ask these and lots of other questions to understand their client’s business. By analyzing the answers with the client, Shina helps business owners learn not only how a valuation is performed, but also what factors third parties will use to measure value. Shina explains the relationship between the mechanics of the business’ operations and objective, saleable value.

The Quist process, which is the same for each client regardless of size, includes an analysis of processes, systems, communications, employee involvement, and other hard-to-quantify things that may not show up in financial statements. Shina’s goal is to provide useful insight, not just numbers. She and the Quist team strive to give business owners tangible takeaways they can use to improve their businesses. “Many people in finance,” she says, “feel good about themselves when they use jargon and unfamiliar terms that clients might not understand.” Shina likes to work with clients who want to understand valuation methodology and are actively involved in the process. Shina shared, “We’ve enjoyed the best success with clients who want to learn more about their business and actively use that knowledge to improve.”

Shina and her team provide independent, third-party perspective about how a company’s strengths and weaknesses translate into value. Quist doesn’t offer accounting or consulting services. By offering only valuation services, Quist allows its team members to remain independent and objective. Team members can analyze data from the outside looking in, can see where a company has executed on its plans, and can identify challenges needing attention.

The Quist team is always on the client’s side, but in some cases this means that a team member’s role is to play the devil’s advocate. This can help the client understand the scrutiny they’re likely to experience from buyers. The team works hard to help clients prepare for a sales process by anticipating buyer challenges and objections. For example, Shina and her team worked with a client who was interested in selling a business, helped the client understand some weaknesses on which a buyer might focus, and helped the client design and implement processes that supported and strengthened the weak points. The client successfully sold the business for a value with which the client was well pleased.

The Quist team’s feedback is the only outside voice some clients ever hear. These owners need an independent, arm’s-length estimate of value and an analysis of how the different components of the business affect value. For example, a family-owned business whose owners include some that are actively involved in the day-to-day operation and others who are not actively involved relies on Quist’s analysis for much-needed independent measures for fairness and objectivity.

Most of Quist’s engagements are with long-term, repeat clients, and this shared history allows the Quist team to help the client create and update plans and hold the client accountable to perform those plans. Team members also draw on Quist’s knowledge database for useful data to help analyze and plan in situations similar to those where Quist has prior experience. In many cases, the longevity of the client relationship allows Shina and her team to suggest improvements, evaluate their implementation, and follow-up and suggest adjustments as the clients’ needs change. For example, Shina and her team used their intimate knowledge and experience with a client to help craft an action plan for the successful transition of ownership to the upcoming generation. This included an analysis of such questions as, “What are some of the things that need to be shored up to continue to grow?,” “When should the transition process begin?,” and “How long will it take to transfer a client relationship to the new generation?”

In 2018, Quist launched a software platform called Quist Insights that asks clients 100 questions covering multiple categories. The platform analyzes the answers and returns recommendations for improvements. Clients love Quist Insights because it allows for a practical understanding of steps the client can implement and the connection between the effort and the resulting increase in value. “Valuation is technical,” Shina notes. “We augment the numbers so that the client always takes away something practical and actionable.”

Some clients have more than a single person complete the Quist Insights questions to gain varied perspectives about their company. For example, both partners of an architectural firm completed the questions and used their combined answers to assign tactics based on which partner was best suited to accomplish each tactic.

Ideally, clients engage Shina early enough to use the information and analysis Quist provides to improve and add value to their businesses. “For any client,” she says, “opening up the ‘kimono’ of their company is a very vulnerable thing to do.” Often companies are hesitant to offer up their weaknesses and aren’t sure if their strengths are valuable. Getting prospective clients over that hurdle is one of Shina’s main goals and biggest challenges.

If you may be kicking some valuation firm tires, Shina recommends focusing on correct credentialing, years of experience, and depth of expertise. In the world of privately held companies there’s no cut-and-dried answer, so the consultant’s years and depth of experience are especially important. And while you’re finding a good fit, Shina recommends making sure that the company’s operating and shareholder agreements are up to date; that its financial managers are up to the task and using accrual-based accounting; and that you’re using processes to preserve, share, and transfer knowledge.

If this sounds like something that your business might need and you’d like to meet Shina, please reach out to me. I’d be honored to connect you.