Don't Chase Margin At The Expense of ROA.
Increasing your margins is a good thing. You should increase your margins, but not at the expense of ROA. Here's an example from the concept referenced in Episode 20 of the podcast. If you want to know more, reach out and we can walk you through it.
Private Company Value Gap
Sadly, most private business owners never come close to maximizing the value of their businesses. This is often because they aren't aware of the many factors that drive business value in the eyes of potential investors or acquirers.
Recently, several renowned experts conducted research that examined the differences in business values between public and private companies. They concluded that, on average a public company with no debt might be worth five times the value of a "comparable" private company.
At Emerge Dynamics, we recognize why and we know how to help you reduce the gap.
Public Company Discipline
When companies prepare to go public, they are guided toward many fine-tuning changes to maximize their value upon entering the public markets. Some of the changes are mandated by laws and regulations, while others are purely part of market expectations. All of the improvements, however, are designed to minimize the risks of investing in that company which, in turn, maximize value.
Business owners shouldn't have to go public in order to get the guidance they need to maximize their business value. They should have a dedicated resource available to them, as private companies, so that no matter what corporate transactions they decide to pursue or when they decide to pursue them, they can do so from a position of maximum value and strength.
Emerge Dynamics' mission is to be that resource.
Why Should Business Owners Care?
- During the next 20 years, as the baby boomer generation retires, private markets will be inundated with businesses for sale, leading to more supply than demand. As a result, valuations will suffer, and only the best-of-class companies will sell at any significant value.
- Research conducted by Pepperdine University indicates that in the lower-middle market there is a 40% failure rate on business owners trying to exit, and the majority of the 60% that succeed include seller concessions.
- The primary reason for such a high failure rate, or seller concession, is a gap in value expectations between the seller and the buyer. By being proactive with a road-mapping process, business owners have better opportunities for long-term sustainable, profitable growth through more manageable methods with greater margins, reduced costs of capital, and greater appeal to outside investors.