Value Components Assessment Tool – a Conversation with Jonathan Frank

November 13, 2013

For many private business owners, their business is a primary personal asset.  In order to aid in the management of this asset and to best understand how to maximize the value of a business, the DVIRC has developed a Value Components Assessment Tool (VCAT), an easy-to-use process that identifies 28 key business-value drivers (components) and calculates a business’s score on each.

Each driver has a different value of importance to professional and strategic buyers. Our simple 1 – 5 weighted scale helps business owners understand what is most important to buyers and, depending on their score, spot critical, easy-to-identify areas of strength and weakness.  For example, Customer Concentration, with a high value, is weighted 5.  If the majority of sales come from too few customers, Customer Concentration will receive a low score.

This intelligence provides the owner with a clear picture of where to prioritize efforts to achieve improvement that will have the greatest impact on increasing the value of his or her business. This score is also compared to a growing database, providing a benchmark to other enterprises.

Jonathan Frank, President and CEO of Metal Edge and Carton Edge International, recently completed the VCAT process with DVIRC Business Solution Advisor Harold Floyd and learned first hand the powerful ways it can help to enhance business value.

“The VCAT tool really helped me understand the perspective of the institutional/professional buyer of businesses,” Frank says. “As an owner, you aspire to sell to one of those entities, so a process that draws directly from the knowledge of bankers and brokers is invaluable.”

Although he is not actively looking to sell his business, Frank says he is consistently working to maximize his options when the time to divest comes around.

“The last thing an owner wants to do is take a company that they believe has been managed well all along and end up taking a haircut at the end of their career,” he says.  “Also, when you position your company properly for sale, you give a better impression to those who may want to buy.”As for specifics, Frank says the value assessment gave him a solid understanding of the metrics involved in valuation.

Screen shot 2013-11-14 at 9.10.37 AM“EBITDA and CAPEX will get you through a cocktail party when it comes to talking about business value,” he says, “but DVIRC talked about some intriguing value metrics: sales from new products, succession planning, growth prospects, management style, three-year EBITDA growth, EBITDA margin…VCAT brings these things to the surface without a whole lot of discussion.  That’s a big plus.”

Uncertainties abound in the selling process.  The due diligence and discovery can seem endless, and unless the business owner has an understanding of the way it works, it can be difficult to understand which questions are important, or when it will end.

“With those big uncertainties, you may inadvertently put your company at risk,” Frank says.  “When people know you’re for sale, there’s always a risk of losing talent.”

VCAT, he says, puts the seller more in control. It empowers management with almost no effort.

“You come out of this knowing the answers to many of the questions buyers care about.  That will reflect positively on the company and on you as a manager.  It will also make institutional buyers happy, because you’ve shortened their evaluation time.”

Summing up, Frank compares the exercise to getting a physical.

“If your doctor advises you to lose weight because your heart rate is high, you can choose to ignore that advice, but at least you know.  What you don’t know could be killing you; wouldn’t you want to find out where you’re exposed?”

DVIRC’s Floyd echoes Frank’s sentiment: “The Value Components Assessment gives the owner a few focused recommendations that will drive business value up significantly,” he says.  “Since for most business owners the enterprise is their largest single asset, addressing these recommendations will likely result in greater personal wealth and a better legacy.”

If you are interested in learning more about the VCAT process—or scheduling a complimentary assessment for your company—contact DVIRC today!  Email or call 215-552-3800.