Business owners need an ongoing planning process and implementation of targeted strategies to grow and maximize the value of their business. Now more than ever, it’s just as important to work ON your business as it is to work IN your business…EXECUTION is key! The process should coordinate business valuation, growth planning and business transfer analysis with personal retirement planning. The ultimate goal…successfully operate, grow and transfer your business on your terms and timeframe, while maximizing and protecting your personal wealth.

Maximize Business Value

To determine how fast you can get to where you want to go, you need to know where you are now. That’s why business valuation is so important.  As part of the process, you should review the profits and cash flow generated by your business so you can understand the range of values the market will place on your business as it is today and in the future. You should assess your value drivers – those factors that enhance the inherent value of your business – and discuss strategies that allow you to maximize business value. The process should focus on key areas such as growth, recurring revenue, product differentiation, customer diversification, financial, sales and marketing, customer satisfaction, human resources and more. You should have a customized and evolving roadmap to maximize the value of your business.

Mental Readiness & Owner Dependence

When will you be ready to leave your business? Mental readiness for a transition is a critical factor for nearly every business owner who wants to continue with their business, but still protect their illiquid wealth. You need to know what the business really means to you – personally – and what you are going to do with your time after the transition. The key indicator of this mental readiness is usually how involved you are in the day-to-day operations of the business.  These are critical questions to answer so that you can think clearly through the transfer process and design a plan to meet your goals.  You need to focus on how ready you are to leave, as well as how dependent the business is on you…. what’s your Owner Dependency Index?

Personal Value Gap

In order to answer the question “can I afford to transfer my business?” you must know your personal financial situation.  In other words, is there enough money saved outside the business to provide financial freedom.  In the case of most owners the majority of your wealth is locked in your business. You need to understand the following:

• What you currently have saved outside the business.
• What other sources of income are available to you today and in the future.
• What your lifestyle expenses are today and are expected to be in the future.
• What the difference is between what you have for assets and income versus what you need for personal living expenses – this is called your Personal Value Gap.

The Personal Value Gap analysis provides an overview of your current financial situation as it relates to being financially free from your business. As part of this process you should discuss and review the following:

• Your existing lifestyle and how much the business pays for personal expenses.
• Your current savings, investments, and savings habits, as well as, your current and projected sources of income (such as real estate, social security, pension income, etc.).
• Your comfort level with projecting certain estimates of return on investments and growth of your liquid assets to complete the Personal Value Gap calculation.

Transfer Options Analysis

As you move through the process you will continually explore when, as well as how you would like to transfer your business. This also leads towards identifying the transfer option(s) that are most likely suitable for you to begin to build your transfer strategy around. Each business owner can identify transfer alternatives available that fit your respective situation.  You should examine all the options available to determine which one is the best fit for helping you to achieve your overall goals. This may include one, or a combination of, the following transfer options:

• Sale of the Business to an Outside Party/Strategic Buyer
• Private Equity Group Recapitalization
• Employee Stock Ownership Plan (ESOP)
• Management Buyout (MBO)
• Gifting Program

The various transfer options may have different business values associated with them.  In order to evaluate the outcome from each of the options, you should understand the “Range of Values” that exists for your business. The estimated range of values for the transfer of a business could include the following different values:

• “Fair Market Value” through the establishment of an ESOP, MBO or gifting program
• “Investment Value” an investor (such as private equity) may pay for your business
• “Synergistic or Strategic Value” a competitor may pay for your business

Ongoing Process

Employing an ongoing business planning process of working ON the business will give you peace of mind in having known you have done the hard part, namely making the commitment to move ahead and invest in protecting your most valuable asset and being the best prepared to make the largest financial and emotional decision of your life.

We perform business valuation services to support the successful transition of ownership in middle market businesses, provide business owners the timely information they need to make informed financial decisions, as well as support successful litigation efforts.

The personal wealth of over two-thirds (70%) of business owners is tied up in their business. For many of these individuals, the business becomes their personal retirement savings vehicle. These individuals, however, could be driving blind. Without knowing the value of the business, how will they know when they can stop working or the lifestyle to expect in retirement? Having the information needed to prepare adequately for retirement is just one of the many benefits to a business valuation.

Besides transition planning, privately held business owners, as well as the legal community can rely on our team of experts in valuation matters for assistance in the following areas:

• Increase Business Value. What is measured improves, and valuation is no different than establishing and overseeing a sales quota. A comprehensive business valuation will provide owners with a clear explanation of the value of the business along with evidence to support the result. It can tell an owner if efforts need refocusing, or … even better … if the company is headed in the right direction. The data helps guide strategic decisions and business development plans and can even help an owner determine whether the right people are in place to support long-term goals.
• Divorce. Business interests represent marital assets and could become part of an owner, partner, or shareholder’s divorce settlement. Both spouses may approach the settlement proceedings with independent business valuation reports, so historical valuations could provide valuable insights.
• Dissolution of Partnership. When a business partnership goes bad or partners agree to part ways, the parties have to find a fair and equitable split of interests. Whether the weighting shares changes, one partner buys the other out, the partnership gets dissolved, or there’s a litigated shareholder divorce, a business valuation will facilitate the process.
• Capital Infusion. Outside investors and lending institutions will evaluate the business plan, shareholders’ agreement, investment memorandum, and valuation before investing or loaning capital.
• Mergers and Acquisitions. A business valuation facilitates a negotiation between entities entertaining a possible merger or acquisition.
• Tax Strategies. A valuation report can lead to tax benefits an owner might not otherwise claim. A current valuation is also required for estate tax settlements, to calculate capital gains tax liabilities, and for income or property tax disputes.
• Employee Incentive Programs. A company must disclose its value to employees to satisfy annual requirements for Employee Stock Ownership Plans.
• Insurance Planning. Nearly three-quarters (70%) of businesses do not have adequate insurance coverage. When an owner doesn’t know the value of his/her business, it is challenging to determine how much insurance is needed. Also, if an owner is injured or wrongfully distracted from business, a historical valuation could help recover losses.

Conclusions / Opinions of Value

We have extensive experience with traditional and more formal business valuations, which are often necessary based on the intended use, such as litigation, annual ESOP engagements or estate and gift tax filings. These engagements result in a “Conclusion or Opinion of Value” and can be performed at various levels.

BV Level 1 – We perform all of the procedures required to present an Opinion or Conclusion of Value. Our findings are communicated in computational exhibits without a valuation report narrative. In addition to financial analysis, industry benchmarking and comparable transaction searches, Level 1 includes a self-assessment of owner dependency to help identify where the business may be vulnerable, or increase value, due to over reliance on key individuals.  It also involves a self-assessed value driver profile to evaluate how the company may be viewed from the standpoint of company specific risk and growth potential. The assessments of owner dependency and value drivers, particularly in transition planning engagements, can also be used as tools to help facilitate discussions around increasing the transferability and profitability of the business.

BV Level 2 – We provide everything in BV Level 1 and our valuation findings are communicated in a summary report narrative.

BV Level 3 – We provide everything in BV Level 1 and our findings are communicated in a detailed report narrative suitable to support testimony in deposition, arbitration, or litigation, and may be introduced as evidence before a trier of fact.

*Engagements can be conducted in 2 phases where Phase 1 includes BV Level 1 and Phase 2 includes the reporting from BV Level 2 or BV Level 3.

Consulting, Litigation Support and Related Valuation Services

Additional services will be billed at our standard hourly rates. Such services could include expanded due diligence, asset tracing, merger and acquisition planning, risk assessments, succession planning, exit planning, business growth and profitability planning, transactional tax planning, owner dependency or value driver consulting, transfer options analysis, proform a development, owner dispute resolution assistance, deposition assistance and expert testimony.

Calculations of Value

The real reason most business owners put off knowing the value of their business could be the result of an error in perception. Formal business valuations, while required or desirable under certain circumstances, typically involve a fairly extensive, more expensive and time-consuming process. Thanks to innovative technology, however, those barriers can be avoided in many situations. Our valuation experts can provide accurate “Calculations of Value” at a much more reasonable cost and quicker turnaround. Calculations of Value can be ideal for certain purposes, such as: strategic planning, transaction (purchase or sale) planning, transition planning or litigation or divorce proceedings, which are in the settlement stage.