IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by David Wilkins of Big Office Man CFO, LLC (www.bigofficeman.com)
5 Things to Consider Before Valuing Your Business
When it is time to sell your company, or a private equity group approaches you with interest, you must consider how to go about a process that insures you can define and meet your transition goals. Bo Burlingham in his book Finish Big raises some steps to defining a happy or relative happy exit from your business. I recommend this book.
1: What is Going to Engage You Next?
I have worked with several business owners who lost their purpose in life after exiting their businesses. There is something about being “in the game” only to get jolted into sitting on the proverbial bench. I have yet to meet an entrepreneur who has left his business and sits on the beach with umbrella drink, yet this is what we imagine. No stress and no more cash flow issues.
The reality facing business owners after exiting their business is that suddenly nobody is coming to you for answers and advise. Moreover, you are no longer driving performance. This is a jolt shock for an entrepreneur with a driver personality who has always engaged in and accomplished their goals.
The reality is to avoid this, you must invest your wealth in something. Consider: Will you invest in something that you know and trust the management group, or will you leave it to chance in the public companies?
You must consider first what is on your heart. You’ve accomplished the goal of growing and successfully exiting your business. Now – you need a new goal.
2: Consider All Your Assets!
When you value your business, you want to make sure you know where you stand in the “big picture”. To accomplish this, make a list of four “buckets” of assets.
In the first bucket, put the monetary assets, cash, inventory, accounts receivable, equipment. In the second bucket, list personal assets such as family, friends, faith, and other relationships. In the third bucket, list intellectual assets like education, knowledge, experience, accomplishments and community. In the fourth bucket, list charities and taxes, taking assessment of what matters to you.
If you were to bankrupt one bucket, which bucket is first to go?
3: Consider Your Relationships Within the Business – What about the people who took the trip with you?
Throughout the life of your business, you have built relationships with people who have helped you succeed.
They are managers, foreman, vendors, customers, and consultants that have had a hand in your success business growth. Likewise, your future happiness depends on how these people are treated in the end.
Consider and example of Boyd’s coffee – a third- generation local company in the Northwest that sold and moved all employees to Texas.
4: Consider Your Rewards
Starting a business requires substantial risk. When the time comes to exit the business, you want to ensure that you are properly rewarded for those risks, and the accomplishments you’ve made along the way. Rather than deciding how much you need to receive, or your family needs to consider your legacy. It is easy to fall into the mindset of how much you should receive when exiting your business from a monetary standpoint – but don’t forget to consider your legacy. Consider what do you need to be rewarded for the risk you have taken and the accomplishments you have make. The success of many owners is derived from improving other people’s lives – this is how they morph the market they are in and add great value to their communities. Be sure to factor in these key elements when considering the value of your business.
5: Learn to Value Your Business
Once you have determined the value of your business – be at peace with the value of your business or work to change it. In addition a professional can help you value your business; not only from the perspective of where you are, but also where you want to be.
There are traditional methods to increase value like increasing more revenue, improving margins, reducing selling and admin expenses. There are also methods of re-evaluating your business that may be hidden from a simple EBITDA type calculation that. This can help you realize a better value by understanding how to define your business.
Conclusion:
You have worked hard and beat the odds in business and survive to 10, 15, or 20+ years. You have created great value for your community. The transition of exiting your business creates a level of risk that you have not considered when you were building your business. This is a most important time to follow your heart to find an end result that you are happy with.
It has been said money cannot buy happiness, but a successful business owner considers all that is in his heart so that he or she can use his their wealth to build great happiness, and remain involved in that happiness into an engaged retirement.
David Wilkins is a partner with Big Office Man CFO LLC. We believe every owner provides valuable products and services to our communities and improves people’s lives. Everything we do we do to improve the cash flow for owners and remove barriers that block owner’s goals. Our passion is to provide high level strategic value, remote controller services, and valuable exit services that not only provide the greatest dollar value but also help owners finish big. If you have questions about the content of this article or any area relevant to Mr. Wilkins’ expertise please contact him at (503) 936-7626 or davidwilkins@bigofficeman.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.