Business owners eager to sell their company are wise to take time to assess their business operations before embarking on the sale process. Prospective buyers want to understand what they are purchasing, and will consequently scrutinize every facet of your business. This will include financials, corporate documents, personnel records, contracts, patents, licenses, etc. Taking pains to perform your own due diligence prior to going to market is the best way to avoid headaches during the buyer’s due diligence phase.
Death, taxes – even divorce – are some of the more sobering circumstances that underscore the need for an independent valuation. Even when the motivation is more upbeat – such as a qualified buyer with a serious offer – the existence of an independent appraisal can provide the parties with a sense of reliability.
As privately held businesses mature and grow in value, the desire for, and prudence of, personal liquidity and diversification grows in importance to business owners. When much of one’s personal net worth is tied to a highly successful, yet illiquid business, the owners are often faced with the question “how can I personally diversify yet remain in control of my company”? The use of an Employee Stock Ownership Plan, or “ESOP”, provides business owners a distinct advantage toward personal liquidity. An ESOP allows the business owner to cash out a portion of his/her business, retain control, while providing excellent tax benefits to both the shareholder and the company going forward. Furthermore, the benefits an ESOP provides to the company and its employees are significant, which makes the ESOP a triple threat liquidity strategy.
RUN, DON’T WALK. Go see your estate planner NOW!
On August 2nd, the Treasury issued proposed regulations that will drastically change estate planning. If you have, or anticipate having, a taxable estate, you should visit your estate planner as quickly as possible to determine the possible financial impact.
By definition, business valuations require assumptions to be made. The trick is to consider all elements of the business and market conditions to carry the assumptions to a reasonable conclusion.
Winter Conference of the Alliance of M&A Advisors (AM&AA)
Daily, the sale or merger of a company involved in a service industry grabs the headlines. Whether a service provider to the healthcare, insurance or other industry, it feels like all companies and industries are in “play”. The announcements of these sales or mergers are normally accompanied with assurances from management that the ownership change will not adversely affect employees or the level of service to customers. Regardless how strong the promise, the fear associated with change is unsettling for many. So while the pace of mergers and acquisitions (M&A) continues to increase, business owners in all industries must continue to keep a watchful eye and consider all options for succession of ownership, both external and internal. One interesting option, which we’ll discuss further, may be the sale to an Employee Stock Ownership Plan (ESOP).
As valuation experts, we are also called upon to be advisors. We could simply perform a valuation using the standard of value dictated by the client or attorney; that would certainly fulfill our role as an expert. However, in most cases, our clients are better served when we act as advisors as well.
“The biggest human temptation is…to settle for too little.” – Thomas Merton
Many business owners decide to sell their company after receiving an unsolicited offer from a prospective buyer. Growing revenues and improving profitability have required their full attention, and they may have never stopped to consider the value they have created in their company. An attractive initial offer may be an unexpected surprise, motivating the owner to consider the sale.
Be wary of valuation calculators on the websites of many business valuation and M&A advisory firms. These calculators allow business owners to enter basic financial data and quickly retrieve the “value” of their businesses. Many of these products describe the final result as a “business valuation”. While it may be appealing for owners to receive a free, quick and easy valuation, the results should not be relied upon. Remember, you get what you pay for.