Knowing how to build and monetize the value of a business is a unique skill set that most business advisors, attorneys, and accountants don’t have – but it’s what we do.
There are five things every business owner should do to ensure they are able to achieve their personal and business goals when they are ready to cash out of their business:
Know What Your Business is Worth – We recommend that business owners get an independent market valuation every year so they always know their company’s value. Tracking market value is the most objective way to determine how well a company is performing – and is also the best way to identify and prioritize steps that could be taken to improve the company’s performance and increase its value. It can also provide an early warning for potential problems.
Every three years, Mass Mutual Insurance Company conducts a Business Owner Perspectives Study to take the pulse of business owners. According to the 2022 Business Owner Perspectives Study, business owners listed the following as the key reasons for having their business valued:
- Measure the health of the business
- Know its growth potential
- Know the value for sale
- Know if the value is sufficient to fund retirement
- Estimate estate tax obligations
- Obtain funding/line of credit
We estimate the market value of the owner’s business, and, more importantly, we help the owner understand what drives the value of their business.
Establish Target – We recommend business owners work with a financial advisor or wealth manager to determine how much wealth they need to create in their business to meet their long-term personal, financial, and post-exit goals. A well-defined company value objective gives the owner a target for building value in their business.
Build Value – Building on our experience in helping hundreds of business owners build strong, sustainable companies and using techniques used by leading private equity investors, we help business owners increase the market value of their company by improving financial performance and increasing the company’s valuation multiple.
Most business owners understand that increasing revenues and profits will increase the value of their business – but many business owners don’t know that increasing a company’s valuation multiple can have an even more dramatic effect on the market value of a business.
Protect Value – Even if a business owner does not plan to sell their business, their company may suddenly be for sale because 50% of private company sales and liquidations are triggered by unplanned events – including disability, illness, death, divorce, loss of key people and other life events. Unplanned ownership transitions or liquidations produce bad outcomes for business owners, their families, and their company.
Having succession and ownership transition plans in place is like life insurance. It isn’t a “top of mind” issue with most business owners – but it should be. Their financial future, their family’s financial security and their company’s future depend on it.
We help business owners protect the value of their business and financial security by developing contingency, succession and ownership transition plans. These plans give the business owner a roadmap for:
- Achieving their business and personal goals when they leave their company
- Protecting their and their family’s financial security
- Ensuring the survival of their business
- Minimizing, deferring, or eliminating capital gains, income, and estate taxes
- Controlling how and when they exit their business
Monetize Maximum Value – Business owners have two options when they sell their business. One option is to sell to family members and/or employees. Since family members and employees typically don’t’ have enough money to pay full value for the business, the owner has to make special arrangements to help family members or employees buy the business.
The other option is to partially or completely sell their business to a third party. Partial sales give an owner an opportunity to monetize some of the value in their business while holding onto some equity in the business. This creates an opportunity to continue building the value of the business with the new owner and then sell their remaining equity at a higher price. This “second bite of the apple” often produces a significant windfall for the owner and their family.
Most business owners think their business will be easy to sell when they want to sell – but getting full value when a company is sold is hard and requires specialized expertise.
With our extensive experience in buying and selling companies, we help business owners receive maximum value when they recapitalize or sell their company. We work with the owner to define their company’s “value proposition,” develop a recapitalization or sales strategy, and prepare marketing materials that effectively tell the company’s “story.”
Then we market the company by contacting a broad range of potential investors and buyers, including private equity firms, family offices, and strategic buyers. By marketing to a broad range of potential buyers, we help owners get maximum value by finding the right combination of price, terms, compatibility and other factors.
