Among the many areas financial advisors find themselves forced to become knowledgeable in is that of business valuations, but to date there have been few technology tools meant specifically to help advisors in working with business-owner clients.
That’s where Capitaliz and its newly launched Dynamic Revaluation feature come in.
Originally built and launched in Australia, Capitaliz is a digital platform meant for three different types of professional roles: wealth advisors, exit planners and business advisors (there are offerings for each on the company’s website). With regards to wealth advisors, the platform provides a repeatable and scalable process for carrying out business valuation and succession planning.
The company, which has been operating in its home country for over a decade, as well as New Zealand, the U.K. and Canada, came to the U.S. market about 18 months ago, according to Capitaliz founder Craig West.
The Dynamic Revaluation feature uses predictive analytics to help advisors determine the monetary impact improvements and investments to make to a business can make prior to a sale.
In doing so, advisors can help business owners prioritize what will matter most in what is referred to as the “value gap,” bringing to the fore areas of improvement (prior to a sale) that can raise the value of a business while avoiding or de-emphasizing minor areas that will do little.
Key to the feature is the proprietary 21-step process which has been used and refined for more than a decade to identify, protect, accelerate, unlock, and manage value in privately-owned businesses.
“One of the big differences is that we track about 150 non-financial metrics for each client, whereas most existing valuation software relies only on financial metrics,” West said.
West, who started his career as an accountant, said building Capitaliz grew out of a steady stream of business-owner clients who asked for help in valuing their businesses over the years.
“Businesses, by their very nature, are much more complicated these days and baby boomers, in particular, need help with exiting,” he said.
“We have found that on average, there is a $1.3 million value gap between what privately owned business owners think they are worth and what they should be worth, and what we’ve done with the platform is refined how to arrive at that calculation in a far more automated way,” said West, whose consultancy has worked with about 800 clients over the years in Australia.
He said about 120 advisors are currently using the platform in the United States.
“When we onboard a new advisor, we actually run their own business through the platform,” he said.
After gathering a business owner’s inputs, which are a mix of all their most important financials, in addition to those 150 non-financial parameters, the platform then calculates current value.
“The first part is identifying its current worth, say $5 million, but with this list of improvements should be worth $6 million—here’s where that gap is and what you need to do to improve it to get to $6 million,” said West.
The data and analytics baked into the platform, he said, is what will help an advisor make the biggest impact.
“This predicts which of those 200 factors will make the biggest difference, like putting a corporate governance structure into place or other critical processes they are lacking in the businesses,” he said, acknowledging many owners and advisors simply lack this experience and expertise to do this on their own.
The advisor and owner then come away with a digital 50-page Business Insights report (which, can of course be printed). It provides a detailed breakdown of dozens of aspects, from a strategic overview of the business, to normalized P&L, cash flow and revenue analyses and comparisons, to business and comparative benchmarking and easy to read scorecards in multiple areas (with letter grades).
Those scorecards help show where the owner shines and areas for improvement. And then the Capitaliz platform can be used collaboratively with the business owner to track progress and set calendar goals over time on making improvements to the report and plan.
Chris Goebel, the founder and president of Crossroads Advisers, a client of Capitaliz, who describes himself as a business transition planner and strategist, said while many small business owners’ single biggest asset is their business, they do not often view it from the most advantageous perspective.
“You can get valuations for different reasons but this report looks at it from the eyes of a buyer, and a lot of wealth planners are looking at and focused on the value,” he said, referring to data gleaned only from a business’s financials.
He has worked with two other software valuation products, and while he did not want to name them, he said that he found the Capitaliz system easier to understand and to convey to clients.
“The report, in my opinion, helps show how a business operates, the processes the business has in place, and that’s very difficult to quantify. And often those operations areas of a business are usually the weakest,” Goebel said.
As with many other areas of specialization in the financial advisory world, there is upfront training (Capitaliz Academy) and an accreditation upon successful completion (Capitaliz Accredited Adviser), which costs $4,800 and includes creation and delivery of the first client report.
After the one-time initial training fee, Capitaliz charges based on the number of end-clients on the platform; it costs $350 per month for each client (which includes a six-month minimum per client). This includes all platform features and benefits. Volume discounts are available for larger firms.
According to Capitaliz, in most circumstances, a valuation advisor (without the software) will charge, on average, between $4,000 and $6,000 per month, per client to conduct a valuation analysis, meaning the software cost comes in at less than 10% of the fees the advisor charges.
