Owners of more than 20 million private U.S. businesses do not have an independent, reliable method to know what their business is worth, nor do they have an impartial ally to help them figure it out. So owners end up spending a great deal of time and money to procure a valuation lacking in actionable insight, or they rely on cheap, fast, superficial approaches to valuation. What these business owners need is a simple, trustworthy way to understand the value of their company. The TEVO score gives them just that, as well as a better understanding of how to increase their value.
First, the TEVO score quantifies the opportunity gap between a company’s current and potential value. As a result, business owners can understand their probable sale price by learning the current and potential multiple, which is the estimated enterprise value based on revenue or EBITDA. Next, business owners can work with a trusted advisor to gain additional insight into how to strengthen their business.
The TEVO score is the only standardized way to value private companies using a multiple as an indication of what an owner can potentially sell the business for today. The score spans five key performance indicators:
The strength and reliability of the numbers
The sales and profits of a business tend to attract the most attention, but the quality of the earnings is what really matters. For businesses in low margin industries or where revenues exceed $25 million, trends, metrics and management are generally more important to improving the TEVO score. Introducing a few simple measures can make a significant difference. To high margin or smaller enterprises, the “Financial Analysis” is still important, but other categories are just as valuable.
Business Systems and Processes
Infrastructure and the ability to deliver
For services businesses or those with tangible intellectual property, “Business Systems and Processes” become particularly critical to business success. From contracts and legal issues to the quality of the information technology and the building itself, these aspects of the business are key to positively impacting the TEVO score.
The diversification of customers and sales force
Although business owners don’t typically focus a great deal on business basics like customer and channel concentration, market share and vendor status, “Base Business” is often the first place to look to increase the multiple. By improving factors such as how revenue is generated to the structure of the client base and the supply chain in between, business owners can significantly improve their TEVO score.
Reliance on the owner and overall strength of the leadership
Once companies grow to more than 50 employees or more than $10 million in sales, the management team and succession plan become especially important. Regardless of company size, a reduced reliance on the owner and a clear path for creating a layered management structure is required to score well in this area.
Growth, margin, integration and expansion
Financial Analysis” measures what has already happened while “Opportunities” looks at where a business is going. It’s an area that’s very important to people viewing the company from th56tee outside, but often not a priority for the business owner. Nonetheless, companies with expansive, scalable, expandable products or services will achieve better TEVO scores than those for whom these components are lacking or weak.