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Unlocking the True Value of Your Business: Insights from a Valuation Expert

Welcome to my latest blog post, where I delve into the crucial topic of business valuation, a subject that resonates deeply with entrepreneurs and business owners contemplating their future. As the host of “Leadership Powered by Common Sense,” I recently had the pleasure of engaging with Dave Bookbinder, a seasoned professional in business valuation. In this post, I’ll share the invaluable insights and lessons from our conversation, aiming to equip you with the knowledge to navigate the complexities of valuing and potentially selling your business.

The $7 Trillion Question: What’s Your Business Worth?

In the United States, baby boomers have amassed an estimated $6 to $7 trillion in private companies. As they reach retirement age, many face the reality that there’s no family successor to take over their life’s work. This brings us to the pivotal question: What is your business worth in today’s market?

Dave Bookbinder, who leads the valuation practice at Flanagan, a full-service accounting firm in New Jersey, joined me to shed light on this topic. With a background in finance and a career path that led him from investment management to valuation and M&A, Dave brings a wealth of experience to the table.

The Lifeblood of Business: Understanding Valuation

Valuation is not just a number—it’s a guidepost for managing your business and a critical component of your overall asset allocation. Surprisingly, many business owners in the U.S. believe they know the value of their business, but in reality, they’re often misinformed.

The Misinformation Trap

Business owners frequently fall victim to the “back of the envelope” or “back of the napkin” valuation methods, which are far from accurate. Commonly, they’re told their business is worth a certain multiple of EBITDA, but without a thorough analysis, this can lead to unrealistic expectations.

Preparing for Sale: More Than Just a Transaction

Selling your business is a process that requires preparation. It’s essential to be “sale ready,” as unforeseen circumstances can force an owner to sell at any moment. To bridge the gap between expectations and reality, it’s crucial to understand the nuances of your business compared to others in the industry.

Key Valuation Drivers: Reducing Risk, Increasing Value

A key factor in valuation is the relationship between risk and value. Anything that reduces the buyer’s perceived risk can increase the valuation of your business. This includes addressing key man risk, where the business heavily relies on the owner, and implementing robust processes and systems.

The Role of Human Capital and Working Capital

Human capital and institutional knowledge are significant contributors to a business’s value. The departure of key personnel can pose a substantial risk to operations. Additionally, understanding working capital is vital in buy-sell transactions, as it can significantly affect the deal.

Assembling Your Team: The Importance of Professional Advisors

Just as building a house requires a general contractor to oversee specialists, selling a business necessitates a team of professionals, including wealth managers, CPAs, and attorneys. These experts ensure that all aspects of the transaction are managed effectively, minimizing risks and maximizing value.

Conclusion: Seeking Expert Guidance

As we wrapped up our discussion, Dave Bookbinder emphasized the importance of reaching out for professional guidance when it comes to valuation and strategic decision-making. For those interested in exploring the topic further, I invite you to watch the video version of our show and connect with our network at acquirer.com for assistance with buy-sell transactions.

Understanding the true value of your business is a journey that requires insight, preparation, and the right team of advisors. By recognizing the key drivers of valuation and the importance of reducing risk, you can position your business for a successful transition, whether it’s imminent or in the distant future.

Dave Bookbinder is Executive Director, Valuation Services at Haefele Flanagan. He has a diverse background in corporate finance consulting with specific expertise in the areas of business valuation and intellectual property valuation. He has led valuations of the securities and intangible assets of public and private corporations (under IRC 409a, ASC 820, ASC 805, ASC 350 and ASC 718) for various purposes including acquisition and divestiture, fairness opinions, reorganizations, estate planning and regulatory compliance.

Over the years, Dave and his teams have prepared valuations of business enterprises, intellectual property, capital stock and stock options for purposes such as mergers and acquisitions, recapitalizations and S-Corporation conversions.

During his career, Dave has also provided financial advisory services to client companies for strategic planning purposes including buy-side and sell-side mergers and acquisitions, private placements of senior debt, securitization of lease and loan receivables and pre-acquisition purchase price allocation analysis.

Prior to joining Haefele Flanagan, he held leadership positions with B. Riley Advisory Services, CFGI, EisnerAmper, GBQ Consulting and BDO Valuation Advisors.

Dave is the author of The NEW ROI: Return On Individuals and The NEW ROI: Going Behind The Numbers, and he is the host of the business talk show, Behind The Numbers. When Dave isn’t working, you’ll probably find him in the gym or at the Jersey shore.

Small business owners will hit an invisible wall that can stall the growth of the company. The key reason there is a wall is that owners need to shift from manager to leader. The question is, how to do that?

Doug is a coach for CEOs and Senior Leadership Teams with 30 years of leadership experience. He is the president & CEO of Doug Thorpe Group. Doug is also a podcast host.

He helps owners understand the ways they need to reshape their thinking and attitude to make a successful break through the wall.

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