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How Much Is Your Business Worth?

How Much Is Your Business Worth?. Greig Whitton Founder, Evergrow. Grant Jackson Valuation & strategy specialist. Webinar outline. What drives (and erodes) the value of a business? How much is your business worth? Implications of your business value Next steps.

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How Much Is Your Business Worth?

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  1. How Much Is Your Business Worth? Greig Whitton Founder, Evergrow Grant Jackson Valuation & strategy specialist

  2. Webinar outline • What drives (and erodes) the value of a business? • How much is your business worth? • Implications of your business value • Next steps

  3. “How to Achieve Financial Freedom” • Business value indicates potential wealth upon exit • To estimate required personal wealth: • Adjust annual earnings by inflation and lifestyle changes • Multiply annual earnings by years of financial freedom

  4. “How to Achieve Financial Freedom” • Business value indicates potential wealth upon exit • To estimate required personal wealth: • Adjust annual earnings by inflation and lifestyle changes • Multiply annual earnings by years of financial freedom • To estimate required business value: • Deduct the maturity value of long-term investments from required personal wealth • Adjust by the proportion of business ownership

  5. Which business would you buy?

  6. What determines business value? • Earnings and certainty determine investment value • Thus, the value of a business is determined by its: • Ownership earnings (i.e. annual net profit after tax) • Overall risk profile • Earnings and risk can be cascaded into granular factors • The owner is often the biggest risk

  7. How much is your business worth? • For an accurate valuation, consult a specialist • The quick estimation: multiply annual net profit after tax by a risk profile number (usually between 1 and 10) • Low numbers reflect companies that are very owner-dependent, have limited competitive advantage, and are in other ways risky • High numbers reflect companies that can operate without the owner’s involvement, have a strong brand, and are in other ways well established

  8. Implications of your business value • Required value – current value = your value “gap” • Bridge your gap by growing profit and/or managing risk: • Large gaps usually indicate that growth needs to be prioritised • Small gaps can often be bridged by managing risk better

  9. Business value case study • John needs R20 million in 10 years • His required business value is R10 million • His current business value is R2 million: • Annual profit after tax: R500,000 • Risk multiplier: 4 • What should John do to bridge his value gap?

  10. Business value case study

  11. Next steps Calculate your business value gap Prepare a value management strategy Cascade your strategy into granular business priorities

  12. Need more help? • Evergrow forums • Webinars • Greig: 021 671 8225 • Grant: 082 801 4927

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