How to Value Your Business
When was the last time you looked at your business? When I say looked, I mean pulled yourself out of the day-to-day minutia of running your business and looked at it as a ﬂy on the wall?
We all put in the long hours and the outstanding customer service, look after the day-to-day operations, are overworked from seeing clients, get up at 5 a.m., sleep at 12 p.m. — with no time to even eat our main meal of the day. If this is you, it’s time to take a break — stop, breathe, take a moment and reflect on what your business is worth.
The fitness industry is very competitive and constantly evolving. It varies from large multi-location gyms to boutique size studios.
As a small business owner our dedication to our clients, devotion to continual personal development and maintenance to ensure we are always the best in our ﬁeld — in simple words — is challenging, although we do not see it like this. We’re in our business too much and we love it. Every minute of the day something new has been posted on social media, we’re learning about the dos and don’ts in the recent research in science and movement therapy, we’re reading the latest articles and journals — the list could go on and on and on. We need to stay on top of it, we just keep going, because this is what we do to be the best fitness club in New York or the best personal training studio in Hong Kong.
But when was the last time you looked at your business and valued it?
A couple of months ago I was asked to value my Pilates center in the city of London. With a guess figure in my mind, how would I know if this was too much or too little?
My first thought was, how much is my business worth, and where do I start? I made a quick calculation on a spreadsheet, but how would I know if this was correct?
In theory, a business is only worth what someone is willing to pay for it. It’s easy to list equipment, furniture, possibly customer turnover, but what is the value of you and your experience? We need to apply the formula.
I telephoned my accountant, who advised me that my valuation “sounded about right.” No break clause in the lease, premium area, goodwill, equipment, fixtures, assets, history, contacts, social media accounts, reputable company, successful business. This is how I got to my value, by putting a figure in my head, calling my accountant, asking what he thought, and he replies, “That sounds about right.” I had a lot to learn.
There was no advice on:
• Looking at the last three years’ worth of accounts.
• The proﬁt and loss.
• The add backs: the amount the company will save when you’re not there.
• Multiple of earnings: including inventory, seller’s discretionary earnings, or EBITDA.
• Cash in the bank: the cash free amount calculated on your last year’s accounts.
What about the value of your sticky clients? What about social media followers, success, qualifications and credentials? Sticky clients might go a long way, but the rest is the value of your own success. An educated client knows your knowledgeable and the best in town, but the only way this is shown is in black and white through the figures on your P&L sheet.
Fortunately, a friend of my family who has a successful career in business acquisition jumped in. He took my blinkers off. After a long discussion, he brought me to the reason why I had arrived at the figure on the spread sheet. Now I could prove it, now I could acknowledge it, now I could move on and appreciate the value.
Your goal might be to reach 6,000 members by 2020. But what’s the value now, having 5,000 members? Add up the figures, understand the gap on the balance sheet, look at the potential and get going on increasing your numbers. Acknowledging this gap is your key to more success on the black and white P&L sheet.
My light bulb moment was when I was totaling the figures and I saw how valuable my business is. I had undermined myself and lacked confidence because I’d never stopped in over 14 years of running my own Pilates center to take a look from the outside. Take a look at your revenue, observe the proﬁt coming in, acknowledge it and then build on it.
We have a passion for what we do, but don’t forget it has a value to it. Take a step back and look around. If you do not have a CFO, get a valuation specialist to help you with the figures.
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of it. If you know what you are hoping to achieve and what’s important to you, take the time to value what you have now. The knowing is the drive for more, the understanding is how you’re going to do it.
Failure to plan is planning to fail. Seeing the vision becomes the mission.
Nikki Chrysostomou is the founder and director of the Tranquility Pilates Studio. She has over 14 years of experience running her own independent boutique Pilates studio. If you would like further advice on how to value your business or have any questions in relation to this topic, you can reach Nikki at firstname.lastname@example.org.