Someday, your company will have a valuation event. In many respects, this valuation is a statement of how well you’ve done for yourself, your employees, your family and your community. The only person who’s going to drive a valuation strategy is you.
By now, most New Year’s resolutions have been made and broken. For a business owner, making a resolution to make 2016 the year to create a valuation strategy is one to keep.
The pillars of such a strategy address what investors look for as the four key valuation drivers:
- Return on capital
- Cost of capital
- Growth rate
- Duration of growth
One great thing to bake into your strategy, even if you’re a job shop, is to use 2016 as a planning year around the global component of your valuation strategy. Because of the strong dollar, most of your competition will be looking the other way. Like any new venture, going international takes time. You will be able to get a year’s jump on your competitors by starting before the dollar normalizes. Plus, the financial and expertise resources will be far easier to utilize with reduced demand. Yes, there is new stuff to learn. But as experienced exporter Paul Byrne, vice president and general manager of Building Specialties Corporation for Menomonee Falls-based Bradley Corp. points out, “You already know 80 percent of it, and almost all the rest you only need to learn the first time.”
Why is going international a key component in a valuation strategy?
“Valuation is a forward-looking process,” said Tim Muehler, a forensic and valuation services principal at accounting and consulting firm CliftonLarsonAllen. “Tapping into the opportunities abroad can often provide significant growth in both revenues and earnings. Such growth typically translates into a higher value for your business.”
Investors have two fundamental concerns: will current revenues be sustained; and what is the opportunity for growth? Statistics from the United States International Trade Commission showed that companies who export grow faster, and during domestic economic downturns have more resilient revenues than their non-exporting peers. The U.S. typically goes through cycles of expansion, then contraction. For domestic only companies, revenues are impacted by these cycles. However, companies that sell internationally have much stronger and more resilient growth curves, shown by the impact on businesses in the last recession. The chart here shows companies who exported during the five-year period that included the recession grew, on average, 37 percent, while companies who did not export actually shrank by 7 percent – and those were the companies that were still around in 2010!
Selling into multiple economies significantly raises the likelihood that growth will be stronger and more predictable looking forward. Hence, a company that could export its products or services, or even its expertise, can position itself to be a more valuable enterprise. For a job shop, your revenues depend upon your customer base. An investor will be more impressed if you can show a customer acquisition strategy that includes a healthy proportion of customers who export. Their business will be more predictable, as will the orders they send to you.
Additionally, the data shows companies that export tend to have much higher per-employee productivity, and they can pay workers more and thus get the better workforce, creating even more competitive advantage.
Finally is the size of the market outside the U.S. The international marketplace represents 86 percent of global spending power, and 95 percent of consumers now live outside the U.S. From an investor’s perspective, it represents a big opportunity for growth.
For an investor with expertise in exporting, discovering a company that doesn’t export – but could – is found money. Such a company can be a bargain to buy, and then turn into a growth machine by going international. As a company owner, you want to take advantage of that opportunity before the investor comes knocking.
-Bill Burnett is the director of export services for the Milwaukee 7. He can be reached at (414) 287-4118 or via email at bburnett@mke7.com.
