If you are considering a merger with another firm or even an outright exit strategy, today Jim Baker discusses the metrics necessary to make key decisions.
In our everyday lives, we are constantly attempting to determine the value of things. We try to figure out how much we can get in return for our time, skills, and money. And when it comes to spending money, we often try to make comparisons with other similar products and services to figure out how much something is worth.
We use car buying websites (that track and collate sales data) so that we can inform the kind and forthright salesperson how much others in our geographical area have paid for a given model, and therefore how much we expect to pay. We might use a brick and mortar store to try on an article of clothing to see how it looks and if it fits, but then, we go home and search online for it to get the best deal—and free shipping. And sometimes, the converse is even true, when we determine an item is actually worth more than its accepted intrinsic value, and we are willing to pay more for it. Do you remember the exorbitant price you paid for that concert ticket? In the end, though, we all agree that more information is better and that decisions on buying and selling are made using many factors.
At both Legal-Metrix and Sumus, I continually revisit this topic in my day-to-day work. I try to find the most accurate ways to place value on both companies and law firms to assist others who are buying and selling. I use my decades of experience, but I also think it is best to add the objective to the subjective; in other words, I think about all of the processes I can use to evaluate hard data.
When potential clients are planning exit strategies (or entrance strategies), they are often held back by insufficient tools. For example, it is generally accepted that strategic buyers use some industry-wide multiple of operating profit (EBITDA) to determine a starting price point. The problem I see all too often is that the original starting point can then turn into the final number on the contract.
But what if there were ways in which we could begin with operating profit and then add other variables to determine a more accurate company value? Then, a close examination of a business could take place, and an optimal buying and selling point could be calculated. What if there were hidden dollars in your company?
I invite you to take a look at the Sumus Value Enhancer http://www.sumus-inc.com/sumus-value-enhancer/to see if it is something that interests you. I believe that I have arrived at a set of metrics and formulas that will help me best assist buyers and sellers as they make key decisions.
For comments, or to schedule a free 15-minute consultation, email Jim Baker at firstname.lastname@example.org
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