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How To Value Your Business Using the Impact Positive Business Valuation Framework

(IPBV for sort)

The Impact Positive Business Valuation Framework (IPBV Framework) is a strategic way of maximising the future value of your business.

The benefits of using the IPBV Framework to value your business

  • It offers a tangible valuation that is easy to justify to potential investors or buyers
  • It doesn’t ignore or undervalue key elements of your business
  • It provides a framework for making strategic investment decisions for how to best increase the long-term value of your business
  • It allows you to turn your business into a standalone asset that has value, just like a house or a rental property.

Considerations & Disclaimers

  • It takes time to develop a comprehensive view of your business
  • Using this method to value your business can rule out some tactical buyers only interested in buying your business for its tangible assets (e.g. business flippers).

The IPBV Framework is not suitable for all business types. If you’re unsure if the IPBV Framework is the right choice for your business, check out this article, where we discuss and compare multiple approaches and frameworks for valuing your business (including the IPBV Framework) and how to pick the right one for valuing your business.*

What is the Impact Positive Business Valuation Framework

The IPBV Framework is based on assets. It looks to identify and quantify both tangible and intangible assets that sit within your business. Some assets are obvious, the cash in your bank account, your machinery, equipment and vehicles, just to name a few. Some are less obvious, like the size and quality of your newsletter subscriber database, your SEO score and your documented systems and processes.

Conceptualising your business as a collection of assets is helpful when valuing your business because:

  1. Valuing assets is relatively straightforward
  2. Assets can be easily transferred from seller to buyer
  3. Assets are resilient to changing market conditions

It is important to point out that many seemingly successful businesses can have very few assets.

A company may have a high volume of sales and millions of dollars in yearly revenue and still be considered worthless when it comes to selling their business because they haven’t translated that success into a transferable asset. Running a business is different from selling a business. When you’re busy running a business, it is easy to only focus on the most urgent tasks like generating sales, delivering your product or services and ensuring continuity of cash flow.

Selling a business, on the other hand, is all about asset development, and it is this asset development that can take time and is primarily how your business will be valued when the time comes.

It can take 3 to 5 years to prepare a business for sale, even if it is profitable.

The IPBV Framework categorises assets into 3 groups and then applies the following formula to generate an approximate value of your business.

How the IPBV Framework calculates the value of your business

Current State Assets + Future opportunity + Operations Maturity = The Value of the Business

This essentially breaks down into

  • What assets do you have (Current State)
  • What assets do you project to have in the future (Future Opportunity)
  • What assets do you have that ensure the business will achieve those projections (Ops Maturity)

Why is it a framework and not a formula

A formula is a mathematical equation that gives an exact number. A framework is a way of thinking and structuring a negotiation.

As a business owner, you have probably experienced first-hand how difficult it is to price your products and services. There isn’t an exact formula a buyer and seller agree on that dictate the price. Instead, there are many factors that go into pricing your products. The same is true for pricing your business.

Think of selling your businesses a little like selling your home. Factors like the number of rooms, number of bathrooms, neighbourhood, comparable sales and current market conditions can help you create a price range for your house.

But it is not until the auction starts that you will find the true current market value.

The IPBV Framework helps you set the price range and identify the low-effort, high-value upgrades and renovations you should make to your business to maximise the sale price.

You can find more information about pricing your business in this article.

How to use the framework

1. Current State (Business Assets)

Visualise the current health and position of the business

Use the following table to identify all your current assets and estimate their value. Estimate based on your current market knowledge, which will need to be validated through market research.

For the less tangible assets, ask yourself, ‘if a company didn’t have this asset, how much would it cost to acquire or build from scratch?’

Impact Positive Business Valuation Framework – Current Assets Table

Note this is not an exhaustive list.

It is common for the exact value of business assets to fluctuate over time. It is worth considering visualising your dynamic assets in the form of a business dashboard or scorecard so you can track the value of your business as it changes in real time.

It is a basic human truth that we focus on the things we can easily access and control. So if increasing the value of your business is important to you, make sure you can track your business's value at a glance and make it part of your weekly, monthly, quarterly and yearly planning.

Future Potential (Opportunity Assets)

Use the following table to identify your future projections and opportunities for growth.

Note that these projections need to be supported by strong justifications, strategy and planning detailed in your business plan.

We explain the discount rate as part of this article.

Impact Positive Business Valuation Framework – Projections

Projections are notoriously difficult to create and justify. It can feel highly subjective and speculative to ‘guess’ what your business might make in the coming years.

It is important to remember that projections are the tip of the iceberg. They are the bit that sticks above the surface that everyone can see but are built on top of a much larger body of work that sits below the surface.

The bottom of the iceberg is the business plan. Where you work through all of your plans and assumptions that help you determine what a reasonable set of projections should be.

The earlier you start, the better. The best way to start making accurate projections is to practice setting them, reviewing how you went and, if required updating your projections every 3 to 6 months.

The first few times you do it, it’s likely that you will be way off, but you’ll get better the more you do it.

Operations Maturity (Certainty Assets)

Use the following table to identify the assets of your operation’s machine and estimate their value. Estimate based on your current market knowledge, which will need to be validated through market research.

For the less tangible assets, ask yourself, ‘if a company didn’t have this asset, how much would it cost to acquire or build from scratch?’

Impact Positive Business Valuation Framework – Operations Assets

This is not an exhaustive list

Investing in developing your business operations is by far the best place to start when you’re looking to increase the value of your business. A business with high operational maturity is a business that isn’t reliant on its owner and can offer numerous benefits above and beyond simply increasing the potential sale price of your business.

To get started, create a business playbook. A business playbook is a collection of systems and standard operating procedures that detail your business's operations. It sounds simple, but it is often overlooked in the hustle and bustle of all the urgent daily requests on your and your team's time.

Next Steps

Now that you’ve got the first draft of the total assets, you need to do some research to validate and justify your numbers.

We talk about finding comparable business to help you further justify the value of your business as part of this article

Visual Summary:

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