Business Valuation and Business Succession Planning Lead to Better Business Brokerage Results
Your client, or you if you are a business owner, should obtain a business valuation as part of a proper succession planning process. The business valuation combined with succession planning should result in a higher valuation and better business brokerage results. The business valuation prepared with the purpose of business value improvement should provide keys to improving operating results and reducing transfer risk both of which increase eventual profits from a business sale.
Operating results are the result of quality systems and people working to continuously and forever improve products, service and profitability. Business buyers want “working models”. They want to be able to come in and run the business the way you do and then after a period of time begin to change and grow it. Business buyer’s generally do not pay (or they do not pay much) for future growth. Therefore if your owner client wants to get paid for potential then they should develop it now. The business valuation combined with your succession planning will provide a road map for that opportunity.
Client Results from Succession Planning – Preparing for the sale:
- More money, higher price and higher values. A working model with quality products and services, long term customers, and decision makers other than the owner will greatly increase sale-ability and price. It also ensures a higher likelihood of a successful transition if you want your children to take over.
- Obtain tax savings. In many cases business assets and perhaps even corporate or partnership form can be changed to improve after tax results of the transaction. For larger businesses advanced gifting may also be worthwhile.
- Deal structures that excite buyers.
Buyers have tax and liability concerns. Like tax savings sometimes advance preparation allows you go give sellers what they want increasing your price significantly for a small cost.
- Resolve family and management issues.
Growth and opportunity often create better teams. If you intend to convey to family or management you must deal with and reasonably resolve these matters before the transaction.
- Create additional buyers. If a market sale is desired (or even an internal sale) finding out what buyers want and moving towards that if feasible will increase your buyer pool and increase buyer motivation.
- Realistically timing market.
Perfect timing is hard but our economy operates in 7 to 11 year cycles. When we get to the top of one, unless you want to stay involved for 7 to 11 more years do not wait. Have discipline and sell when the time is right.
- Create new excitement in your business.
Taking actions to really build the business will generate enthusiasm. Enthusiasm is contagious and spurs performance and devotion. This makes your business more fun to operate now and more valuable in the future.