In this article we discuss how to interpret the Discover Report results for your clients and prospects.
Discover is a free initial analysis of a company’s operational health and value. A business owner completes a 15-minute survey to answer questions about the business, including its current revenue, profits (EBITDA) number of employees, industry and location. In addition, the survey presents 18 questions concerning the company’s market position and operational performance to gage its alignment with private business standards (best practices). The resulting report contains valuable information for both the owner and his or her advisor. This document breaks out each section of the report and provides information on how to read and interpret the results.
Section 1 - Header
Objective: The objective is listed here to remind you of your objective selection. Why are you here? Why did you look for additional information about your Company?
Talking Point: Remind the owner of their stated objective. Do the results support this objective? Do they still feel this way after looking at their results or should they take a step back and reevaluate their goals?
Based on the answers you provided: This is a link to the second page of the report, where you’ll find the original 18 Value Drivers, the goal statements to those drivers and the prospect’s answers provided during the Discover survey. You may wish to open the answers up in a new window or tab of your browser so that you can refer to the answers as you explain the report results to your client or prospect.
Potential Business Value: This is the potential enterprise value of your business based on the size, region and NAICS code, if the company could be rated as a best‐in‐class performer. It is based on an algorithm which includes normalized trading ranges and known transactional data from known, reputable directories including Pratts Stats, GF Data, Biz Comps and others.
Talking point: Potential Value is not a given. This number indicates what your client company could potentially be worth if they take action now and address the performance of all 18 drivers at work within their business.
Value Gap: The Value Gap represents the difference between how much your business is worth today (Enterprise Value) and how much it could be worth (Potential Value). Value Gap is a quantification of a company’s risks and opportunities and represents unrealized earnings from a sale due to operational and market position shortcomings. A larger value gap can make it harder for the owner to transition (sell) and indicates it will be difficult for the business to sustain current revenue and profit rates into the future.
We state Value Gap as a range, because, with only 18 questions answered, we don’t have enough information to more specifically quantify the gap.
Talking Point: Value gap is the most important metric your client should understand. The Value Gap is created by poor performance across the 18 drivers. Knowing WHAT comprises this gap can help inform WHY a given company may not provide enough liquidity for the owner when he or she needs it. This is one of the first steps an owner can take to understand how the market looks at their business, and can be critical to developing a strategy to grow the business.
Section 2: Rating & Top Value Gap Drivers
CoreValue Business Rating: The CoreValue Rating is a number between 0-100 and indicates alignment with the private business standards reflected in the drivers and their components. A score of 90 or above indicates a top performer. The grey bars and graph curve represent companies across all industries who use Discover (10K+ as of 10/2018), the blue bar represents where the subject company lies along this curve. The "X" axis of the graph is broken into segments of 10 (0-100). The "Y" axis of the graph indicates a percentage of the businesses reporting in that range.
Talking point: Think of CoreValue rating like a Credit Score for your Operations. The higher the rating, the easier it will be for your client to secure funding, increase their line of credit with lenders, attract and retain the best employees, or implement a growth strategy. If your clients CV rating is below 30, it's reasonable to assume that there are performance issues across the organization that are not being addressed. On the other hand, if your client's score is in the 60s, then they are doing well -- better than average--and may only need to nail down a few performance gaps to be considered a top-rated business for their industry. As with a high credit score, a higher CoreValue rating will give the owner more options for their business, allowing them to adapt to changing business conditions and be more agile in their current business climate.
Growth and Value Opportunity: This chart illustrates the value numbers (Potential Enterprise Value and Value Gap), and includes the top 3 Critical Drivers that contribute most to the Value Gap of the subject company. The whole circle represents the Potential Business Value, the grey area is the larger of the two numbers in the Value Gap.
Talking point: Right out of the gate you now have three specific areas to discuss with your client or prospect. Ask them about how they veiw this chart. Do these three troubled areas resonate with the owner? Did the owner learn something new about their business? Would they like to understand why these three (and not any of the other 18 drivers) stand out as being the biggest contributors to their gap? Taking the Deep-Dive Analysis will reveal why these drivers are out of alignment with best practices in their business.
Section 3 - Industry Comparisons
How Does Your Business Compare? Here, we take the top 3 drivers identified as most critical in the Value & Growth Opportunity chart and compare the subject company’s score to other businesses within the same industry. The grey bars and graph curves represent the numerical score distribution for companies within the same industry who are using or have used CoreValue Discover themselves. The Blue bar represents the subject company’s score in comparison to the industry rankings.
The grey bars represent the distribution of scores across the same industry for a given driver. If the bars are stacked closer to the left (Large Gap) that indicates a higher percentage of peers are reporting the driver is significantly contributing to their total value gap. If the numberof peers report a smaller gap for the driver, then you'll see the bars stacked more toward the right side. The "X" axis of the graph is broken into segments of (0-100). The "Y" axis of the graph indicates a percentage of the businesses reporting in that range.
Talking Point: Peer comparisons help you to show your client whether or not others within their industry are performing better or worse than they are for a given driver. We've identified the top three Value Drivers contribute to the gap, but we want to drill into those drivers to uncover the specific conditions that need attention. This can be achieved via the Unlock Deep-Dive analysis.
Section 4 – Potential Red Flags
Potential Red Flags: A "Red Flag" for a given driver indicates risk. Your client has provided an answer that reveals a significant performance problem that may pose a threat to their business in some way. Left unchecked, these conditions can decrease company value. Moreover, the presence of these conditions will make it more difficult for the owner to achieve his or her overall goals for the business. Investors, buyers, potential employees, board members and other stakeholders may pause when considering the company in any capacity.
Talking Point: Red flags don't just happen; they are an indicator of larger problems within the company. If your client has red flags, spend a little time here discussing the implications of unresolved issues. Let them know that, by taking the next step -- a more thorough evaluation of these risky conditions -- will provide the owner with additional insight into why they were flagged as problem areas, and what they can do to fix them.
Section 5 - Summary
The summary provides an overall score/visual rating and a recap of the original objective selected at the beginning of the survey. It also suggests that if the owner wants to understand the root causes of troubled drivers, why peers may be outperforming them, or how to fix their drivers and improve their operational performance to meet their goals, the next step should be a more thorough analysis with a CoreValue advisor.