Voted #6 on Top 100 Family Business Influencers, most influential expert on Wealth, Legacy, Finance and Investments: Jacoline Loewen LinkedIn Profile

May 20, 2018

Two steps to reduce complexity in performing a valuation

I was listening to Tom Deans, writer or Every Families Business and a good friend of mine, talk about how Founders of businesses transition from business owner to sale of business - to an outside buyer or to their family. One of the best practices recommended by Tom is to get a realistic valuation of the business. Tom recommends to do this years before any form of sale or succession.

To get a realistic understanding of the value of the business, here is an overview of how to get a rough estimate that you can do yourself:

While firstly, revenue and secondly, profit are obviously two key factors in determining your company’s worth, assessing them in a vacuum simply won’t result in an accurate valuation. Even the additional details you provide regarding the number of customers you served during the previous two years simply don’t amount to sufficient data to perform a reliable valuation.
What you have to remember is that any investor, regardless of the reason for the interest in your company, will not be satisfied with a “ballpark” estimate of your value. They will delve deep into every aspect of your business when performing their due diligence in this regard and so should you.
To give you an idea of the complexity involved in performing a valuation, allow me to describe the process:.
Firstly, we will establish the company’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) or Seller Discretionary Earnings (SDE).
EBITDA is used mostly for companies valued at over $5M and is calculated by adding interest, taxes, depreciation and amortization back to your net income.
For companies valued at under $5M, Seller Discretionary Earnings (SDE) is typically used. SDE is the profit left to the business owner after the costs of all goods sold as well as critical operating expenses have been subtracted from gross income. Importantly, the owner’s salary can also be added back to the profit to reflect the true earnings power of the business.
SDE can be calculated using the following formula:
2) The Multiple Applied
The second step of the valuation process is to calculate the multiple that is applied to the EBITDA or SDE figure.
There can be between 80 and 100 data points into consideration when conducting this comprehensive investigation. Here is a small extract from the checklist of factors that we delve into:
  • What level of threat does established competitors pose?
  • Are there any expansion options available within the company’s niche?
  • Is the niche evergreen?
  • What level of technical know-how is required to manage the business?
  • How are current staff members and contractors managed?
  • What standard operating procedures (SOPs) in place?
  • How has the gross and net income been trending for the past 1 - 3 years?
  • How stable is the company’s earning power?
  • Are there any anomalies in the business’ financial history and can they be explained?
Customer base
  • What is the customer churn rate and lifetime value?
  • How much does it cost to acquire a new customer?
  • Why is the business losing customers?
  • Are current referral programs effective and sustainable?
  • How effective and secure are current search engine rankings?
  • Has the site been affected by any Google algorithm changes or manual penalties?
  • Are there any specific locational responsibilities or physical assets with the business?
  • Are there any licensing requirements in order to run the business?
  • Is the company’s intellectual property (IP) protected?
This investigation and research process leads us to an eventual multiple figure that we apply to the EBITDA or SDE value to establish your company’s value.
Typically, this falls between the 2.5x to 4.0x range, although there are exceptions to both sides of this spectrum.
Investigating these factors is dependent not only on a significant amount of experience in the M&A industry, but also on having the time and capacity to perform all the necessary research.
You can get more information on the valuation process by reading the full article at the website of FI International  - this article.

Jacoline Loewen on Twitter @jacolineloewen 

May 9, 2018

Investing and saving yourself from your emotions

As the stock market bumps along, there is a rising noise of worried analysts saying it is time to liquidate. 

One of the wealthiest, self made men is Ray Dalio, a leading Hedge Fund expert and author of Principles. Ray says one of the top three objectives of investing is to save yourself from your own psychological impulses. When the market goes down it is called a falling knife and many try to catch it by selling out. They forget their long term goals and give in to their fear.

"While we all tend to be emotional about money, we're far better off when we approach long-term investment strategy from a cool and rational perspective," Ray says. "Letting emotions influence our investing decisions can often lead us to lose opportunities and result in decisions we'll regret in the long term," he added.

Getting Caught Up in the Excitement

With stock markets continuing one of their longest bull runs in history, despite some recent whipsaw movements, it's hard to avoid getting caught up in the excitement. There's no shortage of tales of overnight success as certain hot investments skyrocket, which for some makes it seem like a great idea to jump on the bandwagon. Same goes for getting caught in panic mode and maybe selling prematurely when markets turn. Investing can be a roller coaster of emotions.
Goal-based investing helps to keep you going down that river and to survive the big waterfalls. Ray Dalio should know. He is the 13th richest person in the world (recorded).

Twitter:@ jacolineloewen

April 13, 2018

What’s driving “gray” divorce?

What’s driving “grey” divorce? More women are risking leaving the safe harbor of their long term marriages and launching out into the unknown waters of being single again after the age of 50.

Newly single women in the "grey" demographic are discovering that the new challenges can bring a wonderful time of renewal. The challenge is to shift their old mindsets and patterns. Once they get going in the new direction and stop looking backwards, their new lives are surprisingly positive.

What is driving this "grey" divorce trend?
  1. Women are more financially independent. More than half of women ages 55 to 64 currently work. Women would rather be single or seek a new partner than remain unhappily married.
  2. Staying together “for the kids” is less of an issue when children are grown adults.
  3. Online dating creates hope for new and better relationships.
  4. Gray divorce no longer means being alone forever.
  5. With increased longevity, the prospect of another 20 or 30 years in an unhappy marriage is no longer acceptable.

April 7, 2018

What do golf and investing have in common?

What do golf and investing have to do with each other? To start, a good golfer needs to be patient, make solid strategic decisions and be able to focus on long-term goals. Seems pretty in line with what it takes to be a successful investor. When it comes to actually playing a good game of golf, there are a number of other similarities. I "tee up" five of them here:

1. There's more than one way to succeed

Brooke Henderson chokes up a few centimeters or two on an extra-long driver to rank in the top 20 in driving distance on the LPGA tour. Jim Furyk has won nearly $68 million in his career using a swing that golf analyst David Feherty famously described as resembling "an octopus falling out of a tree." Good golfers come in all sizes and shapes.
With investing, you can go heavy on stocks, bonds or foreign exchange, or have a portfolio that consists of several asset classes. While a mix of assets can offer some level of protection compared to an all-or-nothing-type strategy, there is no single right way to invest your money — it's all about knowing your own style and comfort zones.

2. Keeping your cool

It's easy to get upset and frustrated with a double or triple bogey. And responding by taking unnecessary risks will almost certainly compound your problems. The best way to deal with any golfing setback is to try to make a solid shot, followed by another solid shot. Before you know it, you're back on track.
Investing will definitely have its ups and downs. Think about the most recent market decline. Did you panic and sell off many of your investments? Or did you double down on previous investments because you were sure that the decline created bargains? Either response could be considered an overreaction. A calm and reasoned approach to your investments, always keeping an eye on your long game, is generally considered the best way to proceed.

3. Past performance doesn't predict future performance

You'd be hard-pressed to find a golfer who doesn't agree with this one. One good round doesn't make you a golf pro and one bad round doesn't mean you should give up the game.
Same with investing. It's best not to become too confident just because of some winning investments, but don't become gun-shy if you have a couple of losers. Research is the key to understanding your investment choices.

4. Process is crucial

When you're facing a crucial situation in golf, one of the worst things you can do is tell yourself "I have to make a good shot now." That extra pressure can cause you to become tense, which can lead to a poor result. Focusing calmly on following your shot-making process can increase your chances of success greatly.
Likewise, when making an investment, it's not productive to say "I have to make money on this one." That is piling on the pressure! Instead, a disciplined process – careful research and thoughtful analysis — can help with reasoned investment decisions. If your process is sound, there's a better chance your investments will be sound as well.

5. Learn from the experts

How many times have people in your foursome offered advice on your golf game? People are generally well-intentioned, but just because something works for someone else doesn't mean it's right for you.
The same goes for those dinner parties where friendly stock tips pile up from people who just happen to know someone who knows someone. Investment advice that seems too good to be true often is. I often hear clients say I got this tip from this wealthy person and I want to invest into that stock. Do a bit more of a deep dive before getting off track from your investment strategy.
Follow me on Twitter @jacolineloewen
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March 22, 2018

Top Market Forecast Award for Jacoline Loewen

Jacoline Loewen
receiving the trophy from
The Ticker Club
for #1 Market Forecast 2017
Jacoline Loewen was awarded #1 Top Market Forecast by The Ticker Club, and received a trophy January 2018. 

The Ticker Club is a 100 year old club with leading members of the finance community, including the Canadian banks,  large funds such as Blackstone, Teachers and wealth managers such as Gluskin Sheff. 

Jacoline says her secret to winning was Pierre Ouimet. This is the second year UBS placed in the top 3 forecasts.