Collection Agency Valuations: The Basics of Valuations
Do you know the real value of your business? Should you care? Surprisingly, most owners don’t know the answer to the first question even though their business is typically the most valuable asset they possess. The answer to the second question, meanwhile, is a resounding yes. Accurately assessing the value of your business, and keeping the valuation updated, should become a critical component of any ongoing business strategy.
Sports teams are evaluated by their ability to win championships, entertainers are judged by the critical acclaim they earn, and both are ultimately measured by the amount of revenue they generate. Public companies can be assessed based on their stock performance; we can quickly see which entities are valuable and which are relatively worthless. But what about a privately held business? How can owners quickly figure out if their company is at the top of its game? The answer is to conduct a business valuation
A valuation establishes the worth for an entire business, or partial interest, by evaluating its historical and anticipated future financial performance. Appraisers must factor in market conditions, client trends, and regulations impacting their specific line of business. If done correctly, a valuation captures all of your business’ essential ingredients in one number. If conducted annually, valuations could become an effective tool to gauge results, drive honest discussions, and establish realistic baselines for bonuses and pay raises.
Valuing your business can come with a range of advantages. Whether your ultimate goal is to grow your business, sell it, or refocus its objectives, a valuation can be incredibly useful and insightful.
How Annual Valuations Supplement Strategic Planning
Valuations can be a critical aspect of strategic planning. That said, most business executives don’t relate valuations to strategic planning. They believe planning sessions should focus on defining marketing goals, assessing sales pipelines, determining capital expenditures, or assessing operations. The same executives perceive that valuations are only performed when the owner is looking to sell or going through a difficult situation, such as a divorce or partnership dispute.
Leadership teams that assess the market value of their business entity on a yearly basis understand the bigger picture of strategic planning. They strive to run their company for sustainable and profitable revenue growth. Valuations are the only true measuring stick for a business because it takes your historical results, current performance, and investments into consideration. It also factors in critical elements that influence the value of a business entity, such as economic conditions, regulations, and other industry factors.
Many owners say it doesn’t matter what value is placed upon their business today since they don’t plan to sell it, or their kids are going to take over someday. Others will explain that an eventual sale is many years away, so they won’t address it now. We’ve noticed this attitude is common among owners of accounts receivable management (ARM) firms. Many choose to put off a collection agency valuation for the reasons mentioned above.
Unfortunately, waiting until you’re ready to sell the business to gauge value – or when you find out that your kids have no intention of taking over – could be a very costly mistake that cannot be corrected.
Knowing the true value of your business can give you a significant advantage when it comes to selling, passing on, or strategically planning for your agency. Performing an annual formal collection agency valuation could potentially save millions of dollars in real costs in the long run.
Valuing your business is a complex process, requiring significant expertise and extensive industry knowledge. Fortunately, Topline Valuation Group, Kaulkin Ginsberg’s sister company, is here to help. Topline’s nationally certified experts offer ARM owners and executives with an in-depth assessment of their company’s strategic opportunities and enterprise value with our product, the Strategic Valuation Assessment (SVA). An SVA provides an understanding of value, relative to transaction structures and current market conditions, and is a more strategic tool used to aid in business discussions and planning. For more information, or to schedule a confidential discussion of your business goals, contact us at firstname.lastname@example.org.