Today's Viewpoint: A MarshBerry Publication

Top Reasons To Do A Periodic Frim Valuation

Valuing an operating business takes time, effort, and commitment. However, it’s important to know where you stand today so you can focus on goals that drive shareholder value long-term. Can you answer crucial questions about your firm’s worth?

You probably know the value of many things in life. Most homeowners know the potential value of their home, and many investors check the performance of their retirement portfolio daily. But what about the value of your business? Independent business owners’ largest asset is typically shares in their firm, but how many know the value of that asset?

If you own a firm, you likely plan to grow that asset and ultimately realize its value one day. But do you know the factors driving that value? What should you focus on to improve value over time? Is there something you’re doing that will take away from that value or increase the perceived risk of a potential suitor? These are some unanswered questions if you’ve never had a valuation performed or your last valuation was years ago.

Here are the top reasons to do a periodic firm valuation by an objective 3rd party:

1. Clearer Decision Making & Strategy

Regular business appraisals can help an owner make informed strategic decisions and provide insights into how these decisions impact value and progress over time. Performing a periodic insurance valuation helps you understand the value of a firm, including intangibles, branding, and customer relationships, and can help drive the following:

  • Advantageous investments
  • Resource allocation and growth strategies
  • Negotiations with investors or lenders
  • Insights into market dynamics and benchmarking
  • Pricing, marketing, and product development

2. Expose Leaks, Risks, & Opportunities

After completing a valuation, MarshBerry regularly hears clients observe that they’ve found a new way to look at their business or didn’t realize they were spending so much on travel & entertainment or technology. Reviewing expenses in detail can show how your firm performs and confirm you’re investing in the right places to drive client service, revenue growth, or other returns.

Relying on a third-party expert to perform a periodic insurance firm valuation can add discipline to operations and steer independent firms away from the trap of running a lifestyle business. Instead, you’ll get guidance on creating institutional value and shareholder wealth.

Some business owners run personal expenses through their company to minimize their tax burden, but at what cost? Potential investors might only see a low-profit margin, affecting valuation. Or, the inverse, where you’re trying to minimize expenses and run a high profit margin but instead end up taking away growth drivers of the business, thus impacting the long-term value of your firm.

3. Talent Attraction & Retention

The best-run independent firms use equity (phantom or real) as an incentive tool to drive growth, attract talent, and meet company goals. A reasonable basis for providing a path to ownership and a stable valuation methodology is important as employees buy in or sell out of their positions. If you want to remain independent, it’s worth investigating these tools as a strategy to hold on to your top performers and align incentives. Setting a baseline for the value of your firm is the first step in pursuing this strategy. Once the plan is in place, have regular valuations performed annually and update the share price. High-growth firms update their share price quarterly or monthly to incorporate recent acquisitions so the share price remains current.

4. Readiness for Any Scenario

Each time you start a valuation, consider the individual purpose or goal you want to achieve. Maybe it’s to sell the firm, raise capital via debt or equity, create a buy/sell agreement, create stock options, calculate taxes, or assess risk, just to name a few. For example, imagine you’re considering an exit strategy. Whether selling the business, passing it on to family members, or taking on a capital partner, knowing the company’s value is essential for determining the timing and terms of the exit.

For several of these purposes, a formal fair market valuation is required. For others, a negotiation between two parties serves as the basis of the valuation and is often referred to as strategic or investment value.

MarshBerry regularly performs valuations for professional services firms, including retail insurance brokers, managing general agents (MGA), wholesale brokers, wealth management firms, registered investment advisors (RIA), and retirement planning firms. Representing buyers and sellers in these segments gives us unique insight into how these firms are valued.

It’s easy to get tied up with the daily operations of your business, but it’s important to take a step back and think about what your firm is worth today and what you hope it will be worth in the future. If you’re interested in taking this conversation further, MarshBerry can help you understand your value and the drivers of that value to achieve your goals.  After all, you can’t know where you’re going if you don’t know where you’re starting.

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Contact Graham Gould
If you have questions about Today's ViewPoint, or would like to learn more about how MarshBerry can help your firm determine its path forward, please email or call Graham Gould, Vice President, at 949.234.9649.

MarshBerry continues to be the #1 sell side advisor in the industry (as ranked by S&P Global). If you’re considering selling your firm, we are the best choice to help you through the complicated process. If you don’t hire MarshBerry, hire a reputable advisor that can help you navigate one of the most important business decisions you will ever make. You will be much better off having an advisor in your corner that knows the industry than trying to do this on your own.