Introducing Instant Appraisal
One of the most frequent questions we get here at Permanent Equity is also one of the most difficult and important to answer, and that’s “What would you pay for my business?” Because, while we hope that sellers and intermediaries would appreciate our aversion to leverage, long time horizon, value-add capabilities, and “No Assholes” policy, the fact is that money also matters and deals don’t close at unfair prices -- at least those worth doing.
But valuing a business is hard. What’s more, it’s complicated. A business isn’t simply worth some multiple on its current cash flows. There are all kinds of other variables that go into building up to a number -- variables that we are exploring and assessing on multiple businesses daily.
So while “What would you pay for my business?” is an important question to answer, it’s generally not one that we can answer on the spot until now. [Queue drumroll]
Today, Permanent Equity is launching Instant Appraisal, a new tool that business owners and intermediaries can use to get a sense of what we would pay for a business as well as a summary of the factors that underlie that appraisal.
The technology behind the tool is not complicated. In fact, we joked about calling it Appraisal AI because that would overstate what is essentially just some numbers being put in a spreadsheet and run through a formula. In reality, we put a lot of thought into what numbers should be put in the spreadsheet, and we labored over what questions we could ask in a straightforward way to suss them out.
For example, you’ll see obvious questions around scale, profitability, growth trajectory, and strength of balance sheet. But you’ll also see non-obvious questions about customer concentration, employee compensation, leadership stability, and ownership clarity.
That’s because appraising a business isn’t just about how much money a company is making today, but how much money it can be expected to make in the future, how well-equipped a company may be to take advantage of the opportunities and tackle the difficulties that may lie ahead of it, and the likelihood of things going well versus things going poorly. In short, it’s an art, not a science that attempts to slam together realities about money, people, regulation, risk, and other messiness.
Given that, what we’ve built is a tool that we hope can not only start conversations with sellers and intermediaries, but also give prospective sellers an idea of why their business is worth a certain value and what actionable steps they might be able to take over time to increase value. After all, better businesses command better valuations, and we are more than willing to pay up for quality.
If you want to get started evaluating your business or a business you know well, you can find Instant Appraisal on our website. A caveat is that the tool won’t give you back one specific number. Instead, it will provide a range, with the most likely value being in the middle of that range, but acknowledging the possibility that a real world number could end up on either side of the range, or even outside of it, and is dependent on structure. That’s because while we built the tool to try to capture much of the nuance we look at in evaluating businesses, we’re sure we didn’t capture all of it. Having said that, we hope we’re off to a good start, and we aim to make the tool smarter and sharper based on your feedback and on the thousands of valuations that will get run through it.
If you have a business, use the tool, and if you don’t, please don’t hesitate to pass the link along to your favorite small business owner, or their CPA, attorney, wealth advisor, or family member.
Not Mobile Friendly: Unfortunately, Instant Appraisal is one of the few pages on our site that will not work from a mobile device. We know, it’s annoying. The application is best viewed on a laptop, desktop, or large format tablet.
