People give gifts to family and friends for special occasions year-round. Jewelry is often purchased for loved ones. With this in mind, here is an analogy of diamonds and business value.
Several factors go into the value and selection of a diamond. The four “C’s” of diamonds are:
Cut: The cut of a diamond determines its brilliance. The better a diamond is cut, the more sparkle it will have.
Carat: This is the term with which people are most familiar. Bear in mind that carat is specifically a measure of a diamond’s weight.
Clarity: Almost all diamonds have tiny imperfections. Diamonds with few or no imperfections receive the highest clarity grades. Some of these are easy to see. However, some are quite difficult to recognize.
Color: The clearer the color, the more valuable the gem. However, the cut, metal, and setting greatly affect the color.
Use your imagination. Imagine placing a diamond between your thumb and index finger. If you look at it from one angle, certain things stand out. If you turn the diamond slightly, you see different things pertaining to the factors listed above.
Although it is the same diamond, you see color, sparkle, and flaws from one angle that you may not see from a different angle. Pretty soon, you will realize that looking at the same object from different angles will reveal different things.
Adding Business Value can be a similar process. The same business can be viewed differently by different people. To arrive at a conclusion, it is helpful to view the circumstances from different viewpoints. The process is part art and part science. While there is a process to follow, one needs to view the circumstances from many angles and viewpoints.
Application: Some years ago, a client was considering expansion into an adjacent territory. He owned a capital-intensive business with many variables. Several million dollars were involved. We provided an analysis of all relevant factors including Capital Expenditures, population, economy, customer sales rates, cost of sales, cost of equipment, and so forth. We made several assumptions based on our experience in the industry. We projected this over several years and calculated a Net Present Value of an economic stream of projected benefits to arrive at a purchase price.
The client subsequently successfully purchased that business segment.
Aldridge Valuation Advisors help you build business value. What areas need to be improved in your business to increase value? What are you not seeing that is right before your eyes? You need an expert with the training for precise examination of your business’s flaws and strengths.