Leveraging Valuation as Your Asset Scorecard

In the dynamic world of business, accurately assessing your company’s value is crucial for navigating various strategic decisions. Leveraging your performed valuation on an asset scorecard can become a powerful tool, offering a structured framework to evaluate the worth, risk profile and strategic importance of your assets. This article delves into understanding your asset scorecard and how it can empower you in areas like estate planning, exit strategies, mergers and acquisitions (M&A) and partner/associate buy-ins or buy-outs.

Demystifying the Asset Scorecard

A common misconception is that a current valuation is only necessary as it relates to the practice of selling your business or a part of your business. An individual may have multiple types of investments (assets) on their balance sheet. Various asset categories may include:

• Publicly Traded Stocks and Investments – These represent ownership shares in companies listed on a stock exchange.
• Real Estate – Any real property in the form of housing, commercial or industrial real estate, as well as raw land and special use properties.
• Alternative Investments (e.g., Private Equity, Hedge Funds) – Any asset outside traditional categories of stocks, bonds and cash.
• Privately Held Businesses – These include any companies that are not publicly traded, including sole proprietorships, LLCs and some larger corporations that choose to remain private.

If you own a privately held business or multiple businesses, it may likely be the most valuable asset on your personal balance sheet. And, you likely may not have a clear idea of the value of your ownership interest in the privately held business, which means the asset side of your personal balance sheet, or asset “scorecard,” may be incomplete with unknown or inaccurate values. Therefore, using the valuation as a scorecard of your assets can help you identify and evaluate how business decisions directly impact performance. An asset scorecard can thus help you determine when business decisions are currently paying off and uncover deeper insights into the organization. For example, if you acquired new equipment or technology, opened a new business location or hired new talent, how are these investments generating return and impacting the overall value of your business?

How Assets are Assessed

Assets on the asset scorecard, and more specifically, investments in privately held businesses, can be assessed through the following lenses:

Financial Importance: This analysis considers factors like historical and projected financial performance, contribution to revenue generation, and potential for future growth or obsolescence. Analyzing an asset’s cost of acquisition or creation also contributes to understanding its financial significance.

Strategic Importance: Evaluate how assets align with your overall business strategy and competitive advantage. Proprietary technologies, strong customer relationships and a well-established brand reputation should all contribute to long-term value creation.

Risk Assessment: No asset exists in a vacuum. Consider potential risks associated with each asset, including market volatility, regulatory changes, technological disruptions and competition. This risk assessment influences the discount rates and premiums/discounts that may be applied during the valuation of a privately held business.

Cash Flow Generation: A core aspect of asset valuation is the potential future cash flows an asset can generate. The scorecard analyzes historical cash flows, forecasts future cash flows based on market trends and expected performance and also considers factors like capital expenditures and operating costs that might impact cash flow generation.

Integration with Overall Valuation: This comprehensive valuation analysis provides a clear picture of the company’s value drivers and associated risk factors. The overall company valuation process forms an integral part of the asset scorecard. The scorecard’s individual asset valuations are aggregated, along with liabilities, to determine an individual’s net asset value or equity value (i.e., personal net worth).

Decision Support Powerhouse

The true power of the asset scorecard lies in its ability to empower stakeholders with valuable insights for informed decision-making, playing a vital role in various scenarios.

Estate Planning: A comprehensive asset scorecard facilitates a realistic understanding of the values of the individual assets held by you that includes your privately held business’s value, aiding in the creation of a sound estate plan. This allows for proper planning of asset distribution to beneficiaries.

Exit Strategies: Whether considering a merger, acquisition or an initial public offering (IPO), an asset scorecard provides valuable leverage during negotiations. By showcasing the true worth and strategic importance of your company’s value, you can secure a more favorable exit strategy.

Mergers and Acquisitions: A more accurate valuation on the scorecard plays a crucial role in M&A by providing you with negotiating power allowing you to walk away from bad deals and successfully execute good deals.

Partner/Associate Buy-In or Buy-Out: The scorecard provides a clear picture of the company’s value composition, enabling a fair price determination during buy-in or buy-out scenarios for partners or associates. This fosters trust and transparency in ownership transitions.

Windham Brannon Can Help

An asset scorecard, far from being a mere valuation tool, is a strategic roadmap that empowers business owners and stakeholders with valuable insights. By understanding the financial, strategic and risk profiles of your assets, you can make informed decisions across various aspects of your business. Whether navigating estate planning, crafting an exit strategy, or facilitating ownership transitions, Windham Brannon’s Valuation Practice professionals can help you leverage your asset scorecard to equip you with knowledge and confidence to make strategic choices that drive long-term success. For questions or more information, contact your Windham Brannon advisor or reach out to Matt Stelzman