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Transferable Enterprise Value

| January 21, 2021 | By

As we move through the phases of the C&A Way, Growth to Goal Model, there’s always one item that remains consistent no matter your goal. Each Growth to Goal Model participant is increasing the Transferrable Value of their organization.

What is Transferable Value?

Transferrable Value is the ascertainable value a purchaser can attribute to the business when stripped of the individual value the seller adds to the organization. If a seller is involved in daily operations, holds all of the key relationships, has failed to implement systems and controls, etc. These will increase the value attributable to the company’s current owner. But, they reduce the organization’s Transferrable Value.

Why is Transferable Value important?

Your business is one of the thousands of enterprises that comprise almost all business entities in the country. Small to medium-sized enterprises (less than 500 employees) account for nearly 99% of businesses in the country.

Unfortunately, almost 80% of all businesses with revenue less than $50MM fail to sell or transact. Why does this happen? 

Almost all goods sell at a perceived value generated by supply and demand. The perceived value of a small to medium-sized business (in nearly 80% of cases) is less than the owner is willing to accept for their business. The results are a lack of a sale or transaction for the owner. In most cases, there was a lack of transparency or an informational gap hindering the business’s ability to transfer. 

How the C&A Way Growth to Goal Model Increases Transferable Value

In the C&A Way Growth to Goal Model, we focus on key value drivers that enhance and highlight your organization’s Transferrable Value. We concentrate on items that allow you to prove your enterprise value through reliable and predictable organizational performance. Through these enhancements, we can close the information gap and ensure a successful transfer. 

With the number of boomer-owned businesses expected to come to market soon, planning to position yourself with the highest potential Transferrable Value has never been more important.

As with any project, the first thing we do when determining our course of action is to benchmark the business’s current Enterprise Value. In the Growth to Goal model, this is our Analysis or Assessment phase. Some of the areas we consider are:

  • Dependable revenue generation
  • Business operations
  • Middle management

Revenue Generation and Profitability

Determining how much of the profits are attributable to the small business owner’s personal relationships is essential. Documentation of the sales system, relationship history, and shifting the value from the owner to the sales system is critical when increasing Transferrable Value.

Business Operations

Most small businesses lack documented and repeatable systems and controls. If you’ve ever heard (or said) when training new team members, this is just the way we do it, that’s going to hurt Transferrable Value. Uncertainties can be reduced or mitigated with robust operational systems and controls. 

Suppose a potential acquirer is exploring your business and determines your employees have readily available and referenceable systems to follow. In that case, their concern that losing an employee may be disastrous post-acquisition is significantly reduced.

Middle Management

Do you have any? Are the current managers nearing retirement age? What is the succession plan for these key employees? As we work to increase the Transferrable Value of an organization, these are common questions that arise. 

Your operational leaders, or lack thereof, are a crucial piece of the value puzzle where we aim to close the information gap. The more structured your middle management is today, coupled with succession plans for the future, the higher your business’s transferrable value will be.

Transferable Value: Key Takeaways 

The competition for potential buyers is fierce. Coupled with the increasing number of baby boomers looking to exit their business, you need to make sure you’re taking the steps necessary to maintain a competitive advantage. Increasing the Transferrable Value of your organization is inevitable following the C&A Way, Growth to Goal model. 

We follow a methodical system to determine the largest value gaps within your business, put first things first when considering the upside, and work through each step with our end goal firmly in sight.

If you’re interested in learning more, we’re happy to discuss additional Transferable Value Drivers and the Growth to Goal Model. Call us today at (508) 797-5003. Or contact us online, and we’ll get back to you asap.