Monday, November 30, 2009
Saturday, November 28, 2009
Friday, November 27, 2009
Tuesday, November 24, 2009
Monday, November 23, 2009
Step 3 in an Exit Strategy: Form Your Advisory Board
Once you have determined your objectives for exit (the finish line) and the present value of your business (the starting line), it is time to obtain professional opinions from a team of experts you trust -- your advisory board. If you do not have an advisory board, here are the key members and some suggested additional members you should solicit:
Core Board Members: CPA, Business Attorney, Insurance Advisor, Business Broker, Banker and Financial Planner.
Additional Board Members: Business Consultant, Investment Advisor, Estate Planner and other specialists as required.
Why do you need an advisory board? Well, you need subject matter experts for depth of knowledge and multi-disciplined membership for breadth of knowledge. Also, the team-based approach will enforce discipline on your attorney and CPA. If they know they need to prepare documents for an annual meeting of other professionals, don't you think they'll be prepared?
What qualifies a good advisor? Well, someone with exit planning experience is a good start. They need to be willing to work with other advisors in developing and sharing a plan for your business. And, they need to encourage action on your part and provide guidance as necessary.
What does an advisory board do? Well, initially, they assist you with putting together an exit strategy. This would include items such as a legal, financial and insurance audits; and tax, employee, growth, contingency and personal financial workplans. Once the initial strategy is complete, the advisory board should conduct annual health checks and reviews of workplans to ensure progress toward your exit objectives.
If you need assistance with pulling together a top-notch advisory board, contact me at 239-405-8818 or eric@bluechipbizsolutions.com for more information.
Core Board Members: CPA, Business Attorney, Insurance Advisor, Business Broker, Banker and Financial Planner.
Additional Board Members: Business Consultant, Investment Advisor, Estate Planner and other specialists as required.
Why do you need an advisory board? Well, you need subject matter experts for depth of knowledge and multi-disciplined membership for breadth of knowledge. Also, the team-based approach will enforce discipline on your attorney and CPA. If they know they need to prepare documents for an annual meeting of other professionals, don't you think they'll be prepared?
What qualifies a good advisor? Well, someone with exit planning experience is a good start. They need to be willing to work with other advisors in developing and sharing a plan for your business. And, they need to encourage action on your part and provide guidance as necessary.
What does an advisory board do? Well, initially, they assist you with putting together an exit strategy. This would include items such as a legal, financial and insurance audits; and tax, employee, growth, contingency and personal financial workplans. Once the initial strategy is complete, the advisory board should conduct annual health checks and reviews of workplans to ensure progress toward your exit objectives.
If you need assistance with pulling together a top-notch advisory board, contact me at 239-405-8818 or eric@bluechipbizsolutions.com for more information.
Sunday, November 22, 2009
Saturday, November 21, 2009
Friday, November 20, 2009
Wednesday, November 18, 2009
Tuesday, November 17, 2009
Step Two in an Exit Stategy: How Much is My Business Worth?
The second step in an exit strategy is to determine how much your business is worth. There is no set way to accurately value a business; however, I am going to focus on the two methods I use:
1. Market Valuation
2. Third-Party Valuation
Market Valuation
A market valuation answers the question how much have similar businesses sold for? To complete a market valuation, I recast three years tax returns or P&L's and latest balance sheet to determine the market value of the assets, the total annual revenue and the owner benefit (actual cash flow to the business owner before personal uses such as loan interest, depreciation, personal vehicle, vacation, etc.). I then review similar businesses that have sold in the past 10 years and calculate three ratios:
1. Sales Price / Weighted Annual Revenue
2. Sales Price / Weighted Annual Owner Benefit
3. Sales Price / Annual Rent
I use these three ratios to triangulate a selling price. I then factor in the relative market value of the assets to determine if the sales price should be adjusted up or down. This gives me a rough estimate of the Market Price the business should sell for.
Third-Party Valuation
The typical third-party valuation will use a number of standard accounting valuation approaches including asset based methods, income based methods, and market methods to determine the business value. A Certified Business Valuation Analyst will generally use between 7-10 methods to determine the business value. Pricing for a third-party valuation typically starts at about $1,700.
Many business owners take the less expensive approach and request a market valuation. It is important to understand in today's tight financial market, many banks are requiring a third-party valuation as a precondition to approving a loan to support business growth, or to provide a loan to a prospective buyer.
1. Market Valuation
2. Third-Party Valuation
Market Valuation
A market valuation answers the question how much have similar businesses sold for? To complete a market valuation, I recast three years tax returns or P&L's and latest balance sheet to determine the market value of the assets, the total annual revenue and the owner benefit (actual cash flow to the business owner before personal uses such as loan interest, depreciation, personal vehicle, vacation, etc.). I then review similar businesses that have sold in the past 10 years and calculate three ratios:
1. Sales Price / Weighted Annual Revenue
2. Sales Price / Weighted Annual Owner Benefit
3. Sales Price / Annual Rent
I use these three ratios to triangulate a selling price. I then factor in the relative market value of the assets to determine if the sales price should be adjusted up or down. This gives me a rough estimate of the Market Price the business should sell for.
Third-Party Valuation
The typical third-party valuation will use a number of standard accounting valuation approaches including asset based methods, income based methods, and market methods to determine the business value. A Certified Business Valuation Analyst will generally use between 7-10 methods to determine the business value. Pricing for a third-party valuation typically starts at about $1,700.
Many business owners take the less expensive approach and request a market valuation. It is important to understand in today's tight financial market, many banks are requiring a third-party valuation as a precondition to approving a loan to support business growth, or to provide a loan to a prospective buyer.
Monday, November 16, 2009
First Step in an Exit Strategy: Owner's Objectives
In my previous blog, I mentioned the vast majority of business owners I work with have never taken the time to develop an exit strategy. Exits can come about as a result of a planned or unplanned event. Are you ready? What are your objectives for a graceful exit?
1. How much annual after-tax income will my spouse and I need for the rest of our lives?
2. How long do I want to work?
3. Who do I want to transfer my business too? Family members? Key employees? Co-owners? Or, a third-party?
4. What do I plan to do after I exit my business?
This is just the 2nd in a series of exit strategy tools I plan to share. If you would like to learn more, please call me at 239-405-8818.
1. How much annual after-tax income will my spouse and I need for the rest of our lives?
2. How long do I want to work?
3. Who do I want to transfer my business too? Family members? Key employees? Co-owners? Or, a third-party?
4. What do I plan to do after I exit my business?
This is just the 2nd in a series of exit strategy tools I plan to share. If you would like to learn more, please call me at 239-405-8818.
Sunday, November 15, 2009
As a Business Owner, Do I Need an Exit Plan?
If you are to successfully exit your business, you need to be able to answer "yes" to each one of the following questions:
1. Do I know the date I want to depart?
2. Do I know the income I will need to ensure financial security?
3. Do I know who I want to run the business after I exit?
4. Do I know how much my business is worth?
5. Do I know how to increase the value of my business through enhancing its most valuable asset - the employees?
6. Do I know how to sell my business to a third-party to maximize my cash and minimize my tax liability and risk?
7. Do I know how to transfer my business to family members, co-owners or employees while minimizing taxes and maximizing financial security?
8. Have I taken steps necessary to ensure the business continues if I don't?
9. Have I planned for my families security if I become incapacitated or cannot continue?
If you answered no to one or more of these questions, call me at 239.405.8818 or email me at eric@bluechipbizsolutions.com and let's talk.
1. Do I know the date I want to depart?
2. Do I know the income I will need to ensure financial security?
3. Do I know who I want to run the business after I exit?
4. Do I know how much my business is worth?
5. Do I know how to increase the value of my business through enhancing its most valuable asset - the employees?
6. Do I know how to sell my business to a third-party to maximize my cash and minimize my tax liability and risk?
7. Do I know how to transfer my business to family members, co-owners or employees while minimizing taxes and maximizing financial security?
8. Have I taken steps necessary to ensure the business continues if I don't?
9. Have I planned for my families security if I become incapacitated or cannot continue?
If you answered no to one or more of these questions, call me at 239.405.8818 or email me at eric@bluechipbizsolutions.com and let's talk.
Saturday, November 14, 2009
Why Have a Board of Advisors? | BizPlanIt The Business Plan Coach
If you are a small business owner or an entrepreneur planning on starting a new business, developing an outside Board of Advisors can be a very good move. There are a number of excellent reasons for putting together a small but committed Advisory Board that will benefit you and your company. Read More...
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