Paul Raggio: What’s the Value of Your Business?

What’s the Value of Your Business?

BY PAUL RAGGIO

SCVBJ Contributing Writer

Isat through several meetings as the interested buyer with owners wanting to sell their companies to my corporation. I was a business unit president, and one of my growth strategies was to acquire companies that could shore up a gap in our core competencies, open new or expand upon current markets, or capture more market share in our existing market.

The concept is relatively simple to understand. However, the process of closing a deal is arduous. The difficulty centers on determining the value of the seller’s company and the buyer’s risk sensitivity in achieving their return on investment.

Over time I came to realize owners often overvalue their companies. I certainly understand why. They put a lot of sweat equity into their business, and they have a loyal customer base and sellable products or services. They spent years building their businesses, have pride in what they’ve grown, and are emotionally attached to the organization and its people.

A buyer’s interest, though, is minimizing risk and maximizing return. With a high degree of confidence, they want to know how long it will take for them to earn back the money they invest and what the future return will bring.

Imagine buying a used car. The outside looks beautiful. No dents and scratches appear, and it has a remarkable, dazzling sheen. The prudent, prospective buyer will always check under the hood and assess how well the car runs and many more lifetime miles.

The more faultless, the higher the value. The same is valid for acquiring a business. A prudent, prospective buyer will want to check under your company’s hood and assess how well the business is running and for how long, and the growth potential. Like the used car, the more pristine the business, the higher the value.

Of course, the first thing a buyer will check is the company’s financial health. How much money is the business earning, what are its capital investments, what debt does it has, and how does cash flow through the company.

A lack of fitness in any one of these areas may pop up as a red flag that, and until resolved, discounts the company’s value and diminishes a buyer’s interest.

There are several other factors buyers evaluate that are often overlooked by sellers. • How much life does the company’s core product or service have in the marketplace, and can it retain and grow its market share? • How dependent is and managed effectively, and are qualified and experienced leaders and managers in place, and for how long?

I’ve written in the past for a company to be successful, it must be sustainable, predictable, stable, consistent, and emotionally connected.

To sustain its success, it must master five disciplines: strategy, mission, business development, people, and execution. Responses to anticipated buyer questions may expose vulnerabilities in the company and provide the focus for future goal development in one or more of the five disciplines. A constant, systematic, and disciplined improvement mindset creates value in the company.

Determining your company’s value must be a vital task and starts the planning cycle for the subsequent year’s business and multi-year strategic plans.

As an owner, you retain the most leverage in negotiating any mergers or acquisitions with other interested parties when you understand your company’s value. This understanding relies on your ability to articulate responses to a buyer’s questions about what’s under your company’s hood and how confident they are of your answers.

In any merger or acquisition proposition, the seller wants to maximize their company’s value, and the buyer wants to minimize their risk and maximize their return. Sellers who use a very deliberate and thorough valuation process, then work on under-the-hood areas that need improvement will maximize their value and be able to negotiate very favorable terms whether being merged with or acquired by another entity. This is how you lead, think, plan, and act. Now, let’s get after it!

Retired Col. Paul A. Raggio is co-owner, with his sister Lisa, of One True North INC Leadership and Business Coaching Solutions. For more information, visit onetruenorthcoach.com. 

OSTRICHES

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public for educational tours, teaching visitors about an ostrich’s life cycle, from egg to table, as well as giving them an opportunity to get up close and personal with some of these large birds for feeding time.

“It’s truly amazing to watch a youngster walk up and stare up at an 8-foottall bird — it just blows their mind,” Royce said. “And it’s cool to introduce these magnificent creatures to different human beings.”

It’s been a gratifying experience for Royce, who’s introduced people, who’d never even seen a chicken, to such large and unique birds, he added.

“What sets us apart from other ranches is our willingness to share … and we’re willing to teach you all about the animals while you’re here,” Royce said.

Grace Pullman and her kids stumbled upon the ranch when searching for a nearby market, an accident Pullman said ended up being the highlight of their weekend.

“You can tell he just loves what he does and his love for the ostriches is genuine,” Pullman said of Royce, who gave her family their tour personally. “These birds are just such odd, yet incredible creatures. The kids really enjoyed learning about them, and we will certainly be back.”

The ranch’s mercantile not only sells ostrich products, such as chicks, both hatching and food eggs, as well as ostrich feathers and oil, but also local raw honey, orchard products, hand-crafted rustic decor, and unique souvenirs and gifts.

Ostrich oil is one of their more unique products, which has been used for centuries by Egyptian, Roman and African cultures as a topical skin treatment, as it is similar to a human’s natural oils and is very high in omegas, which have anti-inflammatory properties, Royce explained.

The family is constantly working to grow the ranch, such as with the archery and tomahawk range and the cherry orchard, which they hope to have open to the public for private picking tours by 2022, as well as their outdoor event venue and campground, which has a newly setup Sioux teepee available to camp in.

The ranch is also now offering horse boarding and hopes to also soon open a farmer’s market to sell fresh produce.

Quail Run Ranch offers 30-minute guided tours to the public for $5 per person via appointment, as well as other

• Ostriches are the world’s largest bird. They can weigh as much as 320 pounds and grow up to 9 feet tall. • Ostriches can’t fly, instead they run.

They are the fastest runners of any birds or other two-legged animal.

They can sprint at 43 mph, covering up to 16 feet in a single stride, but they are also capable of running at 30 mph for 10 miles at a time, making them one of the best long-distance runners in the animal kingdom. • Ostriches have incredibly strong immune systems, making them highly resistant to viral infections. • Ostrich eyes aren’t just the biggest of any bird — they’re the biggest of any land animal. They also have three sets of eyelids. amenities. The ranch, located at 44380 Shaffer Road in Lake Hughes, can be reached by calling (661) 724-1592 or emailing quailrunostrichranch@gmail. com. For more information, visit quail runostrichranch.com. 

• Whereas most birds have three to four toes on each foot, ostriches uniquely only have two toes. • While ostriches have three stomachs, they don’t have any teeth, instead they use pebbles to help them grind up their food in their gizzards.

In fact, an adult ostrich carries more than 2 pounds of pebbles in its stomach. • Ostriches don’t bury their heads in the sand! This myth most likely began from their defensive way of lying low at the approach of danger, pressing themselves low to the ground to try to be less visible, which from a distance, may look as if their heads are buried in the sand. 

Lou Royce checks ostrich eggs in an incubator at Quail Run Ranch. PHOTO BY DAN WATSON / THE SIGNAL