Learn the Key Financial Metrics that Increase (or plummet) the Value of your Business

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Combined, Mark and I have reviewed thousands of profit and loss statements over the years. What we’ve seen and learned in that time, is that certain key financial metrics can make or break the value of a business.

In today’s podcast we cover all of these metrics, including one that could cost a seller hundreds of thousands in value, and give a buyer huge instant equity. If you think the financial metrics and details are boring, wake up!

You work night and day and risk everything to build your business, and it is more than likely that your business is your most valuable asset. Having deep financial details will bring more you more value, peace of mind, and maybe someday help you create a “lifetime event” sale and an exit that will change your life, and the lives of your descendants for generations to come.

Episode Highlights:

  • [:10] How long does it take to do a valuation?
  • [2:35] What are “clean financials”?
  • [4:02] YOY trends tend to be the most important financial factor.
  • [6:12} We always look at a monthly view of the financials. Not just quarterly or annually.
  • [9:15} Revenue by Channel show a deeper view of overall revenue trends (and reveal gold, or roadblocks).
  • [14:40] Any channel that has you “own” the customer brings more value.
  • {15:20] After total revenues, Mark views gross profit margins next, as do many buyers.
  • [17:20] COGs should not include 3rd party fees!
  • [18:41] Gross profit margins below 20% make Mark nervous.
  • [20:10] Joe loves to see advertising expenses by revenue channel (this does not have to be in the P&L).
  • [23:14] When you “get” the metrics right a business value can instantly jump by hundreds of thousands of dollars.
  • [25:31] Trust offsets risk. The lower the risk is the more value your business will bring.
  • [27:03] Don’t hide negative trends…if you’ve recovered. A recovery shows how resilient the business is.
  • [28:23] Drilling down to specific expenses and their trends tell a fuller story of the business condition.
  • [30:19] QLB brokers Advertising, Saas, eCommerce and other business models.
  • [31:01] Certain metrics are key with SaaS and Subscription based businesses.
  • [33:49] Discretionary earnings equals net income, plus add backs.
  • [34:06] Discretionary Earnings as a percent of total revenue “comfort levels” vary depending on the niche.
  • [38:01] Revenue by SKU can show huge built-in growth if some were launched in the trailing 12 months.
  • [39:55] Joe & Mark get into the weeds. Go there with them and learn how to increase the value of your business by hundreds of thousands of dollars, or buy one and get instant equity.

Transcription:

Mark: All right Joe you probably know this from your experience here at Quiet Light Brokerage but how long does it take you … when you’re talking to a client for the first time or somebody who’s requesting a value of the business, how long on average do you think it really takes you to be able to get an estimate of the size of the business and the value of their business?

Joe: Yeah there’s really no short answer to that. I feel like you want me to tell you five minutes but the answer is it’s at least an initial call you get a ballpark range. And then you got to look at the financials and look at the trends, know your trends and look at the details of the financials. It’s so much of that answer and the time frame around it depends upon how good their documentation is and how much they know about their own books.

Mark: Sure and just you know I want you to answer whatever you want to answer. I’m not going to feed you answers; answer the truth. Yeah, well I think that’s true. We’ve been looking a

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