Valuing Tools – Taking the headache out of buying, selling and valuing companies

Since founding Valuing Tools in 2021, consultants António Gomes and João Vaz Leite have helped hundreds of entrepreneurs value and add value to their companies using their experience in marketing, financial consultancy and cutting-edge technology. Essential Business discovers how the Portuguese duo have taken company valuation to the next level.

Text & Photos: Chris Graeme 

These days, finding a valuation service for small companies that is affordable and fast in a world dominated by large consultancies is quite a tall order.

Yet innovative and inspiring Portuguese fintech Valuing Tools can come up with a valuation at a fraction of the time and cost compared to the well-known multinationals.

It’s a bold claim made by two high-flying young startup founders, António Gomes and João Vaz Leite, who joined forces in 2021 to figure out how to help Portuguese companies and potential national and international investors looking to buy into or buy up a company, to reach a fairly accurate market value assessment of a business.

“António contacted me with a great idea to use advanced technology to simplify and streamline the entire valuation process, which today is still largely dominated by the four big multinationals: Deloitte, E&Y, PwC and KPMG, and where valuation is largely confined to supporting their audit practices for medium and large companies,” recalls João.

“We asked ourselves the question: where does that leave the micro and small businesses that make up around 95% of Portugal’s companies’ network, which don’t necessarily have tens of thousands of euros to shell out on a valuation?”

João, who describes António as a “walking financial whizz kid”, says they had a light-bulb moment when they realised there was a solid business opportunity to create a valuations business for SMEs, combining all of their shared knowledge in financial services and marketing, but making it easier, cheaper and faster with cutting-edge technology. ValuingTools was born.

António has a sold background in investment, capital management, mergers and acquisitions, business valuation and financial analysis, having worked in José Maria da Fonseca, Oxy Capital and Baker Tilly Portugal, while João has a background in management, advertising and marketing consultancy and ran his own agency. It was the perfect marriage of minds.

Inspired by the idea, João came up with a budget to start the business. “We set up the company ValuingTools and began researching what the market was looking for,” he recalls.

João noticed that there seemed to be few, if any, smaller companies that, by using advanced technology, could value micro-, small- and medium-size companies at a cost-effective rate, offering a complete range of financial consultancy services at a fraction of the time.

It’s all in the algorithms

The tool supports the entire valuation process for any type of company, from a self-employed car mechanic with his own business with a turnover of €100,000 per annum, to larger SMEs with a turnover of up to €500 million, and come up with a preliminary value from as little as €975.

The data is then filtered and organised through a proprietary tool before a qualitative analysis is made based on the company’s profile and history, as well as data, such as the number of clients and suppliers it has, the profile of the key people and their roles in the organisation, and the competitiveness of the sector in which the company operates.

The process starts with a meeting with the client to get an in-depth understanding of the business operations. This is followed by creating a business plan that serves as the base of the valuation. The final phase is to produce a valuation report and then have a sign-off meeting with the client.

Using a unique mix of algorithms and a vast experience in their respective financial areas, the Valuing Tools duo can also enhance the entire company’s valuation process with a range of customised services.

A lack of ambition

Through extensive research João and António discovered that small Portuguese business owners often lack ambition compared to counterparts in other countries like the US or UK.

“We decided to create content, devise tools and answer questions as to why it is important for an entrepreneur to have their company valued, even if they are not in fact planning to sell it.”

“We came across entrepreneurs who told us that they wanted to value their companies because they wanted to sell them and retire. The Portuguese entrepreneur typically doesn’t want to create assets. They build their companies, buy their houses and cars, and typically sell the company with the aim of living on the proceeds for the rest of their lives,” says António.
António explains that it doesn’t always occur to some small Portuguese businesses to think about why it might be important to get a business valuation for reasons other than selling up. “We advise valuation for many reasons, such as business expansion plans. For example, in cases where the founders want to attract venture capital funds to grow, or merge with another company to gain scale.

And if they do, they don’t always realise that, today, an extensive and objective financial assessment beforehand is crucial. Company owners need to play a strong hand of cards to negotiate with potential investors who are considering buying or investing in the company.

There are lots of other reasons why company owners should have their businesses valued at fairly regular intervals; from assessing if the organisation is running a profit, deciding the best future exit strategy for one or more partners, changing the status of the business’s ownership, considering a merger or an acquisition, a buyout caused by a divorce or business partnership split, to a business and financial assets assessment for a retirement plan and eventual inheritance or trust fund.

António points out that a large percentage of businesses in Portugal are not strictly companies employing staff, but rather individual self-employed businesses, often in the liberal professions; the self-employed accountant, the plumber, the builder, the small private mortgage broker, the car mechanic, the coffee kiosk owner, and so on.

“Business valuation through some of the larger firms is expensive for small businesses and can be a lengthy process but, through these software tools, we’ve succeeded in creating a competitive and affordable advantage that relies on efficiency and automisation of some processes, while at the same time delivering a tailored product,” explains João.

A realistic understanding of the market

One problem business owners often have when considering how much their businesses are worth is that their own economic perception and the perception of the market can differ widely.

“There are two different perceptions business owners have: an economic perception and an operational and organisational perception. However, often the duo encounter serious problems in the way the company is organised and operated, which reveals a lack of understanding. In other words, chaotic and poor corporate governance, which in Portugal is a pernicious issue,” says António.

Another issue is that owners’ opinions about the value of their businesses are often subjective and influenced by emotions informed by the hard work and effort they’ve put into these businesses over years, and they value accordingly.

The problem here is that there is often a gulf between their expectations and the real market value, because prospective investors or buyers value with a cold and analytical head, basing what they think the business is worth on a broad sweep of financial and non-financial factors that, when taken together, paint a better picture of its financial sustainability, risk profile, uniqueness (or lack of), the way it is managed, and its long-term prospects.

Building asset value

João and António say company founders don’t always have the mindset that they have an asset rather than just a profession or work that can be developed and nurtured to eventually sell.

In other words, they are not making the most out of the business by thinking long-term on how they can grow and capitalise on the asset, so that when they do sell it or a share of it, the company will be worth more than just the annual turnover and client portfolio.

“When founders start up a company in the UK or US, they already have a strategic eye to the future and create possible exit scenarios, whereas in Portugal that simply isn’t the case with all entrepreneurs.

“Here it’s a question of education and changing mindsets by encouraging companies to seek the advice and support of specific business growth entities, such as the Portuguese Management Association, venture capital companies and business angels, or financial advisory consultants such as Valuing Tools.”

When valuing a company, the duo takes several essential steps in their process which, in addition to valuing the company, involves preparing an in-depth document dossier to present the company, creating a strategy to enhance its attractiveness for future investors or buyers which they also help identify, creating a marketing and negotiation strategy for the company, conducting the due diligence, providing support with closing the deal and, finally, helping the company owner(s) to effect a smooth transition to the new owners, partners, or shareholders.

Portugal’s corporate financial literacy problem

António Gomes explains that the problem of realistic and objective perception also ties in with a second issue in Portugal – poor corporate financial literacy and governance, whereby the nation’s companies frequently lack structures.

“Sound corporate governance and financial literacy in the way companies are run are vital for the economic development of the country,” says António.

For companies, this means knowing how to effectively manage financial resources, including investment, credit, the distribution of dividends, project management and evaluation, and risk management. “Corporate financial literacy and the ability to understand concepts and technological tools should be a vital part in decision-making and how companies are managed and operated,” he adds.

“Very often in Portugal, the shareholder occupies the same role as a CEO, and in most cases this is a really serious handicap, particularly in family-owned businesses. Without a corporate governance structure, these companies will find it hard to grow, and since most businesses lack this, Portugal’s companies network can’t really evolve,” he stresses.

In fact, a study carried out by the Universidade Católica Portuguesa in 2019 revealed that the level of corporate financial literacy in Portugal is low compared to other European countries.

The study looked at how much Portuguese managers knew about capital structure, the cost of capital, dividend policy, company valuation and risk management. The results showed that Portuguese managers often have difficulties or lack confidence in applying theoretical concepts of good corporate management in practice.

A clutch of services

Valuing Tools helps companies to manage their financial assets and resources by equipping them with the tools, strategies and services they need to add value and grow. It helps business owners make better and more informed decisions and have a more realistic expectation of the real value of their companies, helping them to enhance the strengths of the business for an eventual optimal sale.

So how does it do this in terms of the services it offers? Valuing Tools not only offers company valuations, but also consultancy on company mergers and acquisitions and the business as a whole, the purchasing and sale of companies, financial consulting and advice on the entire company sales process.

Valuing Tools, despite only being in the market for three years, has already managed to clock up a portfolio of around 150 companies per annum from all different sectors, many of them micro and small companies, but also several larger mid-cap companies with turnovers of over €10 million.

Six steps to success

What makes the difference between traditional company valuation consultancies and Valuing Tools is the use of its technology software, which, by using innovative technology, automates the entire process from start to finish in a rapid and intuitive way across six basic steps.

Step 1 is adjudication. This means ascertaining the client’s needs so that the final report and recommendations will be useful for the company to meet its end objectives, be that a sale or other goal.

Step 2 is gathering. Collating all the accounts information required to begin a preliminary analysis.

Step 3 is setting up a meeting with the client and using the preliminary analysis to validate some assumptions and collect other information required to carry out the project.

Step 4 involves preparing and producing a report which is then reviewed by a third-party member of the team.

Step 5 delivers the final report with the estimated valuation of the company.

Step 6 involves clearing up any doubts that may later exist about the valuation, the findings of the report, and how conclusions were reached, including the methodologies used, and if, at some time in the future, a fresh report might needed based on new, additional factors.

“We have the experience to carry out valuations in any business activity sector, consolidating this experience with an academic background which enables us to apply best practices, consistency, and rigour combined with value-added financial consultancy services and cutting-edge automated technology,” says António, who is certified by the Chartered Financial Analyst Institute (CFAI).

In conclusion, by engaging in a serious conversation with these two fintech entrepreneurs, João and António at Valuing Tools can guide business owners to maximise their business value and navigate the successful sale and transition of their companies.

At the end of September/start of October, Valuing Tools is to launch its new SaaS onto the market.
“The tool that we use internally will now be available to the market so that any company or organisation will be able to not only quickly and effectively make a valuation, but most of all can ensure that valuations in different companies, their subsidiaries and departments are done so uniformly.
These days, what often tends to happen with investment funds, consultancies and accounts departments is that each staff member does a valuation in their own way. With our APP and SaaS this problem is solved. We assure that there are uniform internal processes and valuations, regardless of the person who carries them out. We are already working with some clients on a beta phase, but we are already running a pre-sales campaign for companies and entities that are interested,” say João Vaz Leite and António Gomes.