Tips for maximizing the value of your aviation business
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When exactly you should actually value your aviation business is a question that has quite a few misconceptions around it. What if your business appears to be losing money? What if you have done it before? What if you have the idea about the value of another business? When is the right time to look at how much your busines is worth?
There are quite a few misconceptions about the value of aviation businesses floating around. Those of us in the industry have a pretty good understanding as to what the real numbers can look like, but certainly, many people outside of aviation give the impression that if it involves airplanes in any remote way, it must be worth a lot of money. While many aviation businesses do generate a high value, what the value is can depend on many factors and is often not as straightforward as it may seem.
There are risks that are specific to your aviation business. Each of these is a factor that a valuator may consider or a potential buyer may look at when assessing your business and can add risk to or detract risk from your company. Here is a list of such areas that should be looked at and many can be mitigated to improve the value of your business.
You have built your company and selected key individuals with certain expertise, skills, abilities, knowledge, know-how…and they are an integral part of how your company does business. But have you given thought to what would happen if you or one of your key management team members was unable to work or suddenly left?
One of the elements of determining the value of a business is the amount of risk the company is exposed to. Employees, as an integral part of the business, can play a significant role in this exposure.
When assessing the value of an aviation business, the valuator considers many different factors. Of course, the assets, liabilities, revenues, expenses and bottom line are all a major part of that picture, but there are other elements that affect value either positively or negatively. Among those elements are your company's products or services.
It's great to have a business with good customers. You know, those customers that you can always depend on to come back time after time. But did you know that when it comes to how your customer base affects value you can have too much of a good thing?
Increasing corporate value. Great idea. Good concept. Fantastic objective. So it seems obvious that if we increase our sales, it should increase the value of our company. Straight forward and simple, right? Probably, but generating more sales is not the only way to increase the value of your business.
The reality is that most business owners are not truly prepared for emergencies. Whether it's a weather event, a fire, the sudden loss of key personnel or equipment, or something completely different, a major emergency can end a business or decimate its value if it's not prepared. Here are five key items that should be on your Prepared for Anything list.
You are a key player in an aviation business, but have you thought through your long-term goal for the business? There are four simple steps you should take in considering your future and the future of your business.
Did you know that taking a vacation can add value to your aviation business? It's something that many business owners ignore. In fact, not taking a break can have a diminishing affect on value.
When you are considering finding out the value of your aviation business, here are five questions you should your valuator before you have them carry out the valuation.
Those of us in the aviation world frequently hear the term "fair market value" used with respect to aircraft. But what does it really mean when applied to an aviation business?
Quite often the question is asked, "What kind of multiple would you give to my business?" The correct answer to that question is, "It really depends." Although many would like to make overall generalizations, every business is different and there is much that needs to be considered.
The market approach to valuing an aviation business involves comparing it with others with similar characteristics---types and levels of revenue, net income, and asset bases, for example---that have sold Based on how your aviation company compares with others, it is possible to evaluate if your company would be valued higher or lower than the comparatives and assess the value based on that determination.
Discounted cash flow, or "DCF" is one of the methodologies that can be applied to valuing an aviation business. Essentially the opposite of capitalization, discounting involves applying a discount rate to an economic benefit stream.
The income approach, which as its name implies, is focused on the income that the business generates, is the second approach of three general approaches to valuing an aviation business. Income approaches primarily fall into two general categories: capitalization and discounting. The first of these, capitalization, involves dividing the expected economic benefit of the business by a capitalization rate.
Key to the asset approach of valuing an aviation is business are the company's assets. Typically, the asset approach is used when a business is asset intensive, meaning that there are a lot of assets in the company, and usually these assets are integral to the operation of the business. Examples might include a firm that manufactures aircraft parts, a charter company that owns most of its aircraft fleet, or an FBO that owns the land it is on and the buildings out of which it operates.
There are many approaches that can be applied to valuing an aviation business. Which one, or what combination of approaches are best to determine the value of a specific company is dependent on a number of factors. All of the approaches to valuing a business fall into three general categories: asset, income and market approaches.
The final installment of our series on why you should know the value of your aviation business discusses using a valuation as a starting point for moving forward. You re-evaluate many aspects of your business from time to time; it's important to take a look at the whole business as well.
The third installment of our four-part series on why you should know the value of your aviation business takes a look at valuing your aviation business when there are changes in the ownership of the company. This can happen not only when a business is sold, but in many other situations. In some of these situations, the IRS requires a certified valuation.
While determining the value of your business is important if you are considering selling the business, there are many other reasons it can be both important and useful to know how much your business is worth. In the second in our four-part series, we discuss more reasons why you want to know the value of your aviation business.
When someone talks about having their business valued, the reason that typically tends to come to mind for most people is that the owner must be thinking of selling. Getting a valuation of an aviation business is definitely a great place to start if selling the business is the goal. A valuation provides an owner with a realistic understanding of what the business is worth in the current market. It also provides a good point to begin the discussion with a potential buyer.
But there are a lot more reasons to have a valuation done. Download our tip sheet with the first several reasons why you should know how much your aviation business is worth.
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More Worth It Wedne$day!s with tips on increasing the value of your aviation business are available in our Worth It Wedne$day! archive.