Posts tagged with: valuation
It takes a big commitment to start and grow a business.
You need to be clear on your mission and vision, business model, market research, marketing and sales strategy, and operations to implement your business plan.
You take risks and set goals.
You can be consumed by the day-to-day responsibilities and urgent demands.
All of this eats up time.
There’s another critical piece that gets put off but is as essential to achieving your long-term goals. That is your exit strategy. If you include your exit strategy as part of your initial goal setting, then all of your goal achievements will line up and lead toward your ideal exit strategy and you will have a much greater likelihood of monetizing the business you built. Here are a few guidelines to start:
- Choose the right exit strategy for your goals
You have monthly and annual goals for your business. Commit to these intermediate goals only if they are aligned with your long-term goals and the ultimate goal achievement of your ideal exit strategy. Otherwise, they take you down rat holes or dead end tangents.
- Set business growth goals aligned with your exit strategy
Your growth goals are essential to the health, strength and survival of your business. Look at your growth goals in the context of the exit strategy you want to implement. Be sure your growth goals are taking you in the same direction. Growth that is in conflict with your exit plan or competes with your long-term goals will hurt the business and limit your ability to achieve your exit strategy.
- Identify goals to increase value
The value of the business is not just in terms of assets or cash flow. It’s also in your intellectual property. A lot of your intellectual property is stuck in your head. Your intellectual property could also be in your team, your processes, and in the relationships you cultivate and maintain with clients and vendors, etc. So your objective to increase value before your exit could be to capture the intangible value in these less quantifiable areas. This will translate into a much higher valuation of the firm.
- Plan your exit strategy by intention rather than by default
This sounds like a lot of work. In fact, it is. Nevertheless, if you don’t do the work to plan your exit – your dream of achieving an ideal lifestyle, living your legacy and leaving a dynasty – then you are abdicating both the responsibility and the reward. If you don’t plan your exit by design, then you will settle for what you get by default.
- Systematize your exit strategy to maximize value
The more you can systematize your business so someone else can run it equally well without you, the more a buyer will be willing to pay you to keep it going.
The better you are at systematizing everything, the easier it is for a broker to pitch and leverage that value for a higher price. This step takes discipline and consistency that starts long before you intend to exit.
That’s how you ensure your own successful exit strategy.
Business Owner’s Nest Egg
The Business Owner’s Nest Egg Calculator is a software program which resides on the internet that allows for the organization of the entire business owner’s Nestegg to be contained in one place, the 40 page BizNestEgg report.
Business owners want help making the most important financial decision of their lives. Certified valuations can be very expensive and indeed sometimes they are needed in special instances.
But there are many other reasons to calculate the business value that do not demand the certification and the cost associated with a full certified valuation. For all those reasons, we now offer the Business Owner’s Nest Egg Calculator.
The BizNestEgg Calculator delivers:
• Fair Market Business Valuation
• Deal Structure Scenarios
• Tax Ramifications of the Sale
• Post Sale Income Analysis
The purpose of the BizNestEgg report is to answer three questions:
1. How much is the business worth?
2. How and when will the business owner get paid after the sale?
3. How does the business sale coordinate with the business owner’s other investments and how will each year look with regard to income during retirement? This third questions is where you get the know when you can transition to the reinvention of your dreams, not just someday.
Combine the BizNestEgg report with your personal one day exit planning consult report and you have a complete qualitative and quantitative analysis of your business and personal situation.
Request a confidential analysis for your business today. email@example.com
When you get ready to sell your business, the value of the business must be in the business to be monetized and for a buyer to see the value without your active involvement.
Before you can sell the business for maximum value, you must transfer all your knowledge and wisdom into your team, systems, procedures to carry on prosperously in your absence.
For each challenge listed below, here’s what you need to do:
The whole business is in your head – only in your head
You must share every idea, policy, system, process, key, password, contract, etc with your management team. You may give specific tasks and responsibilities to specific people or you can appoint a successor to take on your operational role
Don’t know how to plan, when to plan, when to find time to plan.
You must delegate day to day operations and make time to plan strategically. Get training, hire an advisor, or hire a temporary COO to get plans in place
No marketing plan, sales plan, financial plan or operating plans – except in your head
Get all these plans out of your head an on paper and assigned to different people to implement and achieve the goals in each area. Delegate responsibility for each area of your business to someone, not you. Make them operationally responsible, not you.
Don’t know how to automate or outsource
Exit planning is a great incentive to learn to automate and outsource to get more done, cheaper, not by you. Start by automating just one task. Start outsourcing by hiring an individual or a company to take over just one task or project on your To-Do list.
Decide no new tasks will get added to you To-Do list – instead you will always seek to delegate, automate or outsource first.
No operating procedures
Create an Operations Manual. Buyers expect to be able to read your operations manual, instead of calling you for each procedure. Every time you do something that is a process or procedure, write it down. Every time you document or record how you do something, you are adding value to the business. Start by simply taking notes on an index card for each task, process, system, tool you use.
No contingency plans
A contingency plan is like a security blanket for your business. It protects you, your business, your team and your customers. It also demonstrates to your buyer how valuable your business is that you are willing to protect everything that can be considered unique systems, models or intellectual property. You must lay out your emergency plans for fire, flood, other natural disasters, loss of power, computer crash, password security, data security and redundancy, safety and OSHA policies, backup procedures for when each person is on vacation or ill, etc.
No exit strategy in place
You must choose to take action to explore and consider exit options that would suit you. Take responsibility for ensuring the longevity of your company, the legacy you can leave, and providing ongoing employment security for your team. By following an exit plan you will be in control of when you exit, on what terms and the valuation you will receive to fund your reinvention
Keep all expertise in the owners/ executives heads and private files
You must start sharing your knowledge and wisdom in the business and about the business. You will maximize the value you will receive at exit, only if you transfer all of your knowledge and wisdom about the business to your team.
Everything on this list is a challenge all owners face to some degree. You can share your knowledge, understanding, wisdom and guidance willingly with your team and make your business an attractive buy at a premium price. Or you can horde all your knowledge, resist potential buyers’ due diligence efforts to understand the value in your business, and struggle to sell the business for a fair return.
The good news is that we can all learn new mindset/attitudes and beliefs, we can all learn new skill sets, and we can all learn new information combined with experience to produce the knowledge we need.
To streamline and optimize your business for maximum value, you need to think strategically and keep an eye on every facet of the business, the team and your personal goals and objectives. No one can do all that alone. It’s never too early to build your team of exit advisors.
The best advisors are proactive, open-minded and client focused. Before you commit to any advisor being on your exit team, specifically focused on your exit objectives and timeline, it’s up to you to qualify them to be part of this specific initiative. You need a full complement of advisors, not just your accountant and attorney when you prepare to get out of your business and move on to your own reinvention.
You need the full team of experts on board now to:
- Build a strong deep foundation to strategically grow the business.
- Accelerate growth to achieve your specified goals and objectives for the business.
- Protect all intellectual property – to have all patents, trademarks and copyrights secure and complete well before you want to get out, making them easy to identify and monetize.
- Get all governance up to date and compliant – That includes minutes, resolutions, and annual meetings being recorded, complete and up to date.
- Get the financial books meticulously clean – This goes far beyond balancing the books and paying taxes. It can take 2-3 years to achieve clean books ready for review or audit.
- Maximize valuation – your advisors will help keep this goal in mind at every milestone and strategic decision to ensure goals and investments are always tied to increasing the value of the business.
- Expand exit options – the earlier you start and with a full complement of advisors, you have more exit options to choose from because you have the lead-time to explore them before you decide how and when to get out.
- Ensure the business is buyer ready – your advisors will help you become a strategic CEO with the team in place to run operations independent of your daily presence. This is the easiest way to be buyer ready and buyer attractive, and demonstrate that the value of the business is in the business, not in your head.
- Get your accountants, tax advisor, estate attorney and wealth advisor on the same page. Do this early to expand your wealth preservation options to serve your reinvention goals, objectives and legacy. They can do a better job of achieving your goals when they are on board early and can implement tactics pro-actively for your future plans.
- Document and codify every system, strategy, process and procedure in the business. This one simple discipline adds value every day. It’s also one of the biggest ways that owners lose value in negotiations with buyers because they ‘never get around to it’.
- Give you greater leverage in negotiations with potential buyers. When your team of exit advisors has been working together building your business into a wealth-producing machine over time, you are in a stronger negotiating position with potential buyers.
When you surround yourself with a range of experts to support the exit process over the next 2-5 years, your business will be stronger, demonstrate appealing growth projections, will have a higher valuation than otherwise possible, and become buyer attractive. As a result, you can and will be able to exit your business by intention on your terms instead of closing the doors with no monetary gain by default.
You want to sell your business for maximum value. Here are three solid guidelines to make that goal a reality.
Focus valuation discussions on the future potential of a business – not past performance
- When you negotiate valuation with a potential buyer, it is essential to focus the discussions on the future cash flow potential of the business. A buyer will be more confident and engaged in investigating the purchase of your business when they can perform a business analysis and thoroughly understand the company’s financial performance.
- To be effective in valuation negotiations, sellers will want to conduct rigorous industry research and analysis; develop defensible financial projections; and position both pro-forma financial and strategic benefits (including revenue and cost synergies) of the sale/acquisition/transition to a new owner.
Don’t leave money on the table by neglecting the intangible value of a business
- At a minimum, expect a buyer to pay at least the basic value of your business.
- Too often, sellers don’t recognize that they have the opportunity to monetized the intangible value of the business. When they try to go it alone, inexperienced sellers do not properly substantiate, support and quantify the intangible value of their business to maximize the sale price.
- Applying proper valuation methodologies and techniques for your industry can help you maximize the value of your business that you can command. It is also important to use historical financial statements to sell the advantages of this purchase opportunity for the buyer.
Negotiate a winning deal structure
- The structure of the transaction is just as important as negotiating the valuation.
- To secure and preserve the maximum value of your company, it is critical to build a strong exit team that can effectively structure a winning deal and negotiate the terms and conditions of the transaction itself.
These three guidelines will translate to maximizing the value a buyer will pay for your business.