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Determining your business’ worth

April 1st, 2010 / By: / Finances

Do you know where you stand?

What is your business worth? According to Gary Stansberry, if you are an owner or manager, you should be able to answer that question immediately, or at least at the touch of a button.

Stansberry, a partner with Hageman, Stansberry & Associates, a leading mergers and acquisitions firm in the rental industry, spoke at Tent Conference 2010 in January, providing a sobering view of the state of the industry along with advice about day-to-day financial management that can help tent renters survive in a challenging economy.

The special event rental industry in the United States has been hard-hit during the last 12 to 18 months during the country’s overall economic decline, with an average decline in revenues of about 30 percent in 2009 versus peak revenue periods achieved in the 2007–2008 time frame, Stansberry said. When asked about the current valuations for rental businesses and the acquisition climate in general, Stansberry noted that acquisition activity in general has been down significantly, with valuations down slightly more than the revenue declines. He predicted that it may be up to five years before valuations and acquisition activity returns to 2007–2008 levels, and that some business owners may decide to sell sooner when considering the uphill challenge of running a business in uncertain economic times and the additional investment that will be required to get their business back to their prior valuations.

So what is a tent rental owner or general manager to do with those bleak statistics? Stansberry noted the importance of implementing a system of daily, weekly and monthly monitoring of important financial measures. Specialized financial reports should be readily available in a one-page summary format to the business owner or general manager. He compared these summary reports to the dashboard instrument cluster of a car, where at a glance you “know where you stand” (a phrase Stansberry stressed frequently) on these critical financial measures. These measures, if out of line with company or industry standards, can provide an early warning light for financial issues that may be on your company’s horizon. Important measures include:

  • cash balance
  • accounts receivable balances and aging
  • accounts payable
  • payroll
  • EBITDA cash flow
  • dollar utilization of rental inventory and revenues (including those actually invoiced, future booking and quotes)

Stansberry also advocated putting together a “cash calendar” for your business, estimating all incoming and outgoing cash by day so you are aware in advance of any potential cash flow problems.

A daunting task? All of the information necessary to compile these reports is likely available within your business’s existing rental and accounting software, Stansberry said. If necessary, Excel® or report writer software can be used to put the information in the proper formats.

Stansberry also emphasized the importance of generating accurate monthly financial statements as well as maintaining accurate records of your rental and nonrental assets. Once you have these statistics available at the touch of the button, you will know where you stand today and where you may be standing tomorrow, next month and next year.

A featured presenter at IFAI Tent Expo 2009 and Tent Conference 2010, Gary Stansberry can be contacted here.

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