Part 5 – The Ultimate Guide Of How To Value Your Company: Financial Value

how to value your company - financial value

Jean went to grab a cup of coffee.

Reviewing these financial statements was making her head hurt. The company was doing well, though there were always areas for improvement

Business owners often find it difficult to recognize when it’s time to prepare the company for transfer. It’s best to start the process with an examination of the six value drivers of any company.

Jean was working on improving her Strategic, Organizational, Employee, and Customer value. Now it was time to look at Financial Value.

What Is Financial Value?

The Financial Value of a company revolves around growth and profitability, but also the financial controls and systems in place to manage the business. If an organization has a high quality financial system, the associated data and information output can support that decision-making such as where to invest more and when to make cuts.

Jean knew that her financial systems were good. She was getting decent reports weekly on their financial position. But could they do better – have better and more frequent reports? And what were her EBITDA margins – she hadn’t studied those in a while.

Why Is Financial Value Important?

Small organizations often struggle with financial reporting. For many owners, the financial side of the business is handled by a bookkeeper or accountant. These partnerships are important and business owners can leverage these partnerships for a better understanding of their overall business.

It’s important to understand a company’s financial data and current financial position. High quality financial systems that support growth and profitability instill confidence in the operational activity of the company. Buyers and investors like to see metric driven reports backing up consistent financial growth.

How Is Financial Value Calculated?

To gauge Financial Value, buyers are interested in companies that demonstrate consistent and positive revenue growth and profitability, supported by great financial systems and processes that produce timely, quality data.

Your Company’s Score Is Higher If:

  • You have both consistent and positive revenue growth and profitability
  • You have appropriate EBITDA margins for your industry
  • You have high quality financial record keeping

Improving Financial Value

Improve this value driver by working with your management team and your financial management partners.

Get Better At Financial Record Keeping

If your financial systems are old or out-of-date, consider upgrading or improving those systems. Work with your accountant to find the best fit for your company.

If your accounting and finance departments struggle to provide the senior management team with actionable financial reports, your Financial Value score is lower.

Work On Improving Your EBITDA Margins

EBITDA margins measure income generation relative to revenue and are used to assess operational efficiency. Your company’s score is higher if you’re managing this well.

This measure is important to gauge a company’s earning capacity. Your Financial Value score is lower if your EBITDA is lower. You’ll need to work with your financial partners on this measure.

Increase Revenue and Profitability

Buyers prefer companies that have a pattern of revenue growth and profitability. If your company can show this over time, your Financial Value is higher.

If your organization can’t show steady growth and profitability, than it’s time to diagnose the issue and implement a solution.

Get An Exact Roadmap

Jean is continuing her journey to determine the value of her business. A great option for her is Forward Insights™. This evaluation gives her the data she needs to improve the value of her company through an Action Plan that includes increasing Financial Value.

Can your company show steady revenue growth with profitability?

If not, the Action Plan provided through Forward Insights™ gives you the path to greater Financial Value and a business that is worth much more.

If your company is a leader in Financial Value for your industry, check out your strengths within the remaining Value Drivers with Forward Insights™.

Don’t forget to read Part 1 of this series: Part 1 of the Ultimate Guide to the Value of Your Business: Strategic Value. Part 2 and Part 3 of the series are also available: Part 2 – Ultimate Guide Of How To Value Your Company: Organizational Value., Part 3 – The Ultimate Guide to the Value of Your Business: Employee Value, and Part 4 – The Ultimate Guide to the Value of Your Business: Customer Value.

Want to know more about the value of your company? Rest assured 35 years of experience is behind Management Insights™Forward Insights™, and Expert Insights™ – the tools you can use to increase the value of your company.

Quist Valuation

Quist Valuation was founded in 1984 and is a leading independent business valuation and securities analysis firm.


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