For Your Understanding
UNDERSTANDING EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is a metric used to evaluate a company’s operating performance. It can be seen as a loose proxy for cash flow from the entire company’s operations. The purpose of this calculation is to remove the factors that business owners have discretion over, such as debt financing, capital structure, methods of depreciation, and taxes (to some extent). It can be used to showcase a firm’s financial performance without the impact of its capital structure.
NAICS INDUSTRY CODES
The correct NAICS code Industry selection determines which Normalized Trading Range (NTR) the company will be compared with as well as if the Potential Enterprise Value will be determined by profit or EBITDA. It also sets up the “How Does Your Business Compare?” section of the Report relative to Industry Peers. If you select the incorrect Industry, the Report will be off.
ENTERPRISE VALUE
On the Discover report does enterprise value equal market value when referring to this statement: "This is the potential enterprise value of your business based on the size, region, and NAICS code if your company were to sell today as a BEST IN CLASS PERFORMER, the high-end of the normalized trading range. It is based on an algorithm that includes normalized trading ranges and known transactional data from the multitude.
POTENTIAL VALUE
The Potential Value is calculated through various algorithms and is based on years of data. The Potential Value of your business is determined by looking at thousands of similar business and assessing their individual operational practices. These outcomes are then used to evaluate your business practices and correlate to varying strengths and weaknesses based on best practice techniques.
THE VALUE GAP
The difference between the Enterprise Value and the Potential Value is called the Value Gap. The is the difference between what your business is currently worth and what it could be worth if best practices were followed. This is also the area where improvements can be made.
THE 1% BUDGET
If I'm willing to spend 1% for a professional to help me grow, manage, and protect my liquid assets... Why wouldn't I do it for my business?
Business owners should expect to spend 1% of Enterprise Value to grow their business or prepare it for transition.
RED FLAGS
Red Flags are important issues or ‘watch-outs’ that can negate some, or all, the value of your business, and compromise performance. While Red Flags are “Driver Specific”, these issues penetrate into other Drivers essentially affecting the entire business. Keep in mind that ValuCompass identifies both Business Red Flags (found in Discover) and Personal Risk Red Flags (found in Protect).
ROUNDTABLE WORKSHOP
Roundtable is a marketing tool for prospecting business workshops. Advisors can bring together a group of independent business owners to showcase their skills and highlight their services. This allows a group of business owners to individually complete the 18 Value Driver questions while providing anonymous results and potential prospects in a constructive meeting.
THE 18 VALUE DRIVERS
In order to view your business from every possible angle, ValuCompass developed the 18 Driver System. This ensures that we are taking into account all aspects of the business, no matter the industry, size, or location.