#Lean Company Valuation
What is a Lean Company Valuation?
A Lean Company Valuation is when you combine a lean Operational Assessment with a Financial Valuation, sometimes referred to as a Lean Company Due Diligence Valuation.
It’s conducted on your business which provides you with a current day financial valuation and a potential, future day valuation as a result of implementing lean specific tools, principles and competences to your strategy and operations.
A classical approach to financial valuations, in its simplest form here, is as follows; Let us assume your EBITDA for this year is 40,000 euro and you are basing your future cash-flows on a 7 times multiple or year projections, you could be looking to value your present business at 280,000 euro, all other things being equal, meaning future cash-flows need to be discounted. However,
A Lean Company Valuation will approach this differently, as follows; Its will take the current valuation of 40,000 euro and specify where improvements can be made so as to obtain a higher EBITDA in the shortest possible time frame.
These areas of improvement will typically focus on; Quality rework, rejections and customer claims, production lead-times, cycle times of key processes, standard-work, materials and parts turnover, non-value adding activities as well as TPM, OEE and key elements of organisational culture.
The report will recommend specific lean initiatives which will improve your present EBITDA of 40,000 euro to say 75,000 euro within a 12 month time frame.
This means your EBITDA one year from now will be 75,000 euro, projecting 7 year pre-discounted cashflows, will give you a valuation of 525,000 euro, an increase of over 185% to your present value.
An increase of 245,000 euro increase in the value of your business. Even after discounting the cost of the one year of improvements due to lean, and discounting inflation and any other factors, leaves you with a significant return of your present investment, you will not find in any other financial instruments or investments. NB. with little or no CAPEX and increase in resources.
What is the probability you will achieve similar figures as these?
Zero if you don’t conduct a Lean Company Valuation or engage in a form of lean transition.
98% success if you do (based on confirmed assignments).
The choice is yours, call the ANDON now!