Step Three: Promoting Value

For a moment, think of your company as a race car. If, like a race car engineer, you could design your business from the tires up, what would you include to attract buyers (or professional buyout funds) to look at your company? What features, or characteristics, would be necessary to make your business saleable and valuable? We call these features "Value Drivers." They are characteristics that either reduce the risk associated with owning the business or enhance the prospect that the business will grow significantly in the future. These same characteristics are equally important if your exit objective is to transfer the business to "insiders" — your children or key employees. You will want these Value Drivers to be in place as you exit the business to ensure that the business can continue and that you will receive the income stream you need to reach your financial objective.

Value Drivers include:

• Management Team
• Operating Systems
• Established and Diverse Customer Base
• Appearance of Facility Consistent with Asking Price
• Realistic Growth Strategy
• Effective Financial Controls
• Stable and Increasing Cash Flow
• Tax Efficient Business Structure

These Value Drivers are not dreamed up by a business school professor but are what professional, sophisticated buyers seek in closely held businesses. For those owners seeking to sell to insiders, Value Drivers are equally important. Working with your advisors to develop and enhance these Value Drivers before the sale process begins will position you to get top dollar for your business. Again, having these Value Drivers in place, before the transfer to insider begins, will help ensure you meet your financial exit objectives should you decide to transfer the business to an "insider" rather to sell to an outside third party. These Value Drivers are discussed in the white paper below, as well as at length in our Exit Planning seminars. We also discuss the role of Value Drivers in a sale to third party scenario in John Brown's new book, "Cash Out Move On: Get Top Dollar — And More — Selling Your Business."

Likewise, creating a tax-efficient business structure before the sale process begins can reduce the tax bite by 50 percent or more. If your company is now a regular or "C Corporation," we believe that you must consider the possibility and appropriateness of converting your corporation to an "S Corporation." The difference between the after-tax proceeds from the asset sale of a C Corporation and from that of an S Corporation can be 20 or 30 percent or more. There can be significant after-tax differences even in stock sales. Finally, an S Corporation, as opposed to a C Corporation, is much easier to transfer to "insiders." For more information on this subject, we suggest you read the C vs. S Corporations White Paper below and discuss this vital issue with your tax advisors.

Resources

Library

The Value Driver White Paper - It is the job of every business owner to create value in his or her business prior to any transfer or sale. Exactly how do owners do that? Read this White Paper to learn about those characteristics (or Value Drivers) that buyers look for when deciding how much to pay for a business. The C vs. S Corporation White Paper - This informative white paper explains why the best form of business entity (C or S) for tax purposes during a business's start up and operational years may not be the best when it comes time to sell the business. Descriptive case studies and clear tables help show owners why entity choice is so important. Employee Incentive Planning White Paper - This White Paper discusses the paths that allow a business owner to leave a company in qualified hands. Incentives can be equity-based or cash-based, but all plans handcuff employees to the business and help it to accrue value. This White Paper explores several plan options so an owner can determine which path is best. "Cash Out Move On: Get Top Dollar — And More — Selling Your Business" The Exit Planning Review™ eNewsletter You can request these materials by contacting BEI.

Team

Exit Planning Professional Business Attorney Investment Banker Financial/Insurance Advisor Find An Exit Planning Professional In Your Area

The Bottom Line

Part of the valuation process includes an assessment of the condition of your company's Value Drivers. Strong Value Drivers equate to a strong interest on the part of buyers to acquire your business and willingness to pay top dollar for your business. You need to know what must be done to increase your company's value. Should your Exit Objective be to sell to an insider — a group of employees or co-owner — these Value Drivers are no less important for they ensure the continued viability of the business after you have left — but before you've been paid the money due you.

Go to Step Four

eNewsletters

Books

Seminars

Business Enterprise Institute, Inc. • 741 Corporate Circle, Suite J • Golden, CO 80401 • Phone: 303-321-2242 • Toll-free: 888-206-3009
© 2004-2007 Business Enterprise Institute, Inc.