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YOUR VALUE DRIVERS ARE CRITICAL – Value Drivers help increase the profitability of your business and are critical to establish and develop years before a potential business sale or transition. The bottom line is that they help increase your company’s value. One of the most vital value drivers (increases valuation) is stable and increasing cash flow. Other value drivers are innovation and talent, a well-diversified customer base, business systems that improve sustainable cash flows, effective financial controls and value drivers tied to your specific industry.
GOODWILL IS VALUABLE – The goodwill of your business integrates the synergy among select assets in your business that are used to generate revenue and ultimately profits. They include company assets like the brand (name, logo, etc) and recognition, strong customer base and relationships, company website and domain name, copyrights, trademarks, and patents, licenses and permits, excellent employee relations, talented management team with innovation, processes and systems, training programs, reputation among customers and vendors, proprietary technology and more.
DON’T SHOOT THE MESSAGE – Your message reflects your brand. A great brand is a trust magnet, repeatedly attracting new and repeat consumers or clients. Buyers want sustainable growth and look for leverage to expand a company’s market penetration or make a strong entry to new markets. The brand magnet becomes a vivid and welcome sign for future success and potential growth. Brand management provides an assessment of the current strength of a founder’s brand and develops strategies to maximize the value and adaptability of the brand—including effective communication of the company’s history, story, and value proposition.
THE RIGHT PEOPLE ON THE BUS – As Jim Collins states in his book Good to Great; get the right people on the bus, get the people in the rights seats and get the wrong people off the bus. This bus metaphor talks to the talent that you have in your employees. Creativity and innovation come from talented and highly motivated employees. However, protecting the business through its employees is critical to increasing ultimate business value. Protection of this type includes well-developed employee benefit programs, a strong employee handbook, team-building techniques, actively developing company culture and communications programs, formal incentive programs, strong employment agreements with non-competes, performance and formula-based compensation and more.
NO TAXATION WITHOUT REPRESENTATION – As a business owner who has built a highly successful and profitable business, you are likely subject to a myriad of unwelcome taxes ranging from Income Taxes to Capital Gain and Alternative Minimum Tax, to Gift taxes and ultimately, Estate Taxes on your assets (including your business) upon your death. Just supposed there was a way to minimize, defer or potentially eliminate some or all these taxes; would you want to know how? Through advanced planning techniques involving entity structuring, special types of trusts, customized company benefit plans, business valuation discounting techniques and more, you should be able to save a lot of taxes, if you take the time to plan well in advance of a transaction.
TAKING RISK DESERVES THE REWARD – If you were to list all the risks you and your business are exposed to, it would be a very long list. However, as a business owner, you understand risk and have been willing to take on the liability associated to the risk. You hopefully have bought the proper liability, property, casualty, and life insurance coverage to mitigate the operational risks, have set-up your corporate governance documents to protect the corporation, and have implemented the company policy and procedures to protect against employee-related risks. However, when assessing your risk from a future business succession and exit perspective, protecting yourself and your business takes on a whole new meaning…from a new perspective, since you seek to actively increase the value of your business asset entering into a transaction.
SELLING TO INSIDERS AIN’T EASY – When considering your business monetizationTM options, one that frequently comes to mind for many business owners is potentially selling the business to non-family-member insiders including minority shareholders, existing or new management, key employees or even an ESOP (Employee Stock Ownership Plan). This approach can be tricky at best and messy at worst, so it requires serious contemplation, strategy and good advice to achieve successful results. Developing and implementing a well thought out equity transition strategy is vital to protecting the company from the pitfalls of a poorly structured sale to “insiders”. It must be done well in advance of the transaction.
CREATING YOUR FAMILY’S LEGACY – Family is everything and when you have a family-owned business you have the unique opportunity to create a family legacy through your business. However, there are many potential obstacles that surface when dealing with developing and implementing a family business succession plan which must be considered. Obstacles like matching the right management skills among the family members, identifying who has the true leadership capabilities (may not be a family member), emotional family baggage (emotional intelligence assessments are critical), equitable allocations and distributions of profits/salary, future roles and responsibilities, cash flow to the departing family-members and the ultimate control transition strategy to name a few.
SELLING TO A THIRD-PARTY – BUT WHO? – External monetizationTM means selling your business to a third-party rather than an insider or family members. This approach can take many forms including the strategic sale to an industry related company, a financial sale to a private-equity firm or many options in between. A sale to a third-party has the highest potential for a large cash transaction in exchange for the equity of the company if the business is fully prepared and ready prior to showing its hand to a prospective buyer. If these issues have not been addressed prior to the start of the initial due diligence process (at NDA signing), then it may be too late, and value may be reduced out of the gate.