You should make every effort to prepare or ‘groom’ your business so it is sold successfully at the first opportunity. While the financial advisors you appoint will work with you to address issues specific to your company, there are a number of general grooming points worth considering (even before you appoint advisors) to maximize the value of your business:

Sales & Profitability: Historically, you may have been setting your prices, and thus your profit margins, at levels designed to create barriers to entry for your competition. If you are planning for a business sale your focus is likely to be short term strategies. It will be time to re-examine your market and customer base to see if higher sales and turnover levels are achievable. If the proposed sale itself is a number of years away, you should consider performing a strategic review of the entire business.

Operating Costs: You should regularly review your operating expenses but this is especially so when preparing your business for sale. You need to identify avenues to reduce expenses without affecting the operational effectiveness of your business.

Profit Trends: Apart from current margins, a purchaser will be looking at profit trends. Buyers are looking to see stable and steady yearly profit trends. Therefore, risky projects should be avoided and longer-term contracts that may prove to be onerous should be fully considered before acceptance. Unprofitable contracts need to be reevaluated and, if appropriate, terminated, as it is quite possible they will be detrimental to the value of your business.

Management Team: The purchaser of your business will be looking to acquire a high caliber management team. It may be worth reviewing your corporate structure to ensure that job titles and role descriptions adequately reflect the contribution that your management team makes to your business. Any re-structure needs finalization well in advance of an anticipated sale. A purchaser may also want assurance that the management team is supportive of your decision to sell or at least that it is likely to stay with the business for a reasonable period post-transaction. You should consider talking to management - how cooperative will they be? You never know, they may be interested in buying the business themselves.

Asset Base: Are there any assets in the business that may be of little or no interest to potential purchasers- e.g. short-term investments, under-utilized property, equipment or perhaps surplus cash? Think about realizing and removing them from the business before the sale. It is also worthwhile having all your property assets valued individually.

Restructuring: If your business has more than one division, some thought should be given to restructuring it into a number of stand-alone entities and perhaps selling these separately. Any such reorganization will have potential tax implications and other complexities associated with it and it will be important to take professional advice before undertaking any such initiative.

Tax Planning: Details of the various tax factors that you need to consider are set out in section 4 of this guide. Initial points to address include making sure that all your Corporation Tax, PAYE and VAT returns and payments are up to date. In addition, any tax losses that your company may have built up over the years may now have a value to the extent that they are available for use by the potential purchaser. Personal tax planning opportunities should be discussed with your tax adviser.

Valuation Expectations: You must have realistic valuation expectations. Valuation is important but do not let it get in the way of securing the sale.
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Timing: Deciding the best time to sell your business can be a difficult decision to make. Factors to be considered when making this decision include the level of corporate activity in your industry; the state of the economy; changes in sector relevant legislation; and available tax reliefs (e.g. do you have to be a certain age to avail of certain retirement reliefs or pension planning opportunities).

Step 1- Business Planning (Days 0-90/ Months 0-3)

• Understand the owner’s personal, business and financial goals- Sale Readiness Assessment
• Collect data about the company- Company Information Questionnaire
• Prepare a detailed business valuation-GLM’s Business Valuation Report
• Develop and action plan to Prepare the Business for Sale- Succession Planning Approach

Step 2- Pre-Market Preparation (Days 90-180/ Months 3-6)

• Conduct in-depth industry research: Reference USA & 2018 Business Reference Guide
• Prepare Generic Executive Summary and Marketing materials about company

1. General Information Executive Summary (No Business Name or location)
2. Buyer Nondisclosure Agreement
3. Complete Executive Summary (Company name and Adjusted Financials)
4. 3 Way Confidentiality Agreement (To be signed before seeing complete financials)
5. Complete Company Description

• Develop marketing plan to sell company- Suggested Next Steps
• Identify prospective buyers- Reference USA Custom Lists

Step 3- Going to Market (Days 180-270/ Months 6-9)

• Market company on confidential basis
• Secure nondisclosure agreements from prospective buyers
• Schedule and conduct management presentations and site visits
• Secure Offer to Purchase- qualifying bids or indications of value from buyers

Step 4- Negotiation (Days 270+/ Months 9+)

• Analyze offers and terms to help client decide best option
• Manage key relationship with buyers
• Assist with negotiations of Letter of Intent
• Obtain final signed letter of intent
• Coordinate the due diligence process
• Assist with negotiations of purchase and sale agreement

Step 5- Closing (Days 270+/ Months 9+)

• Work with attorneys to draft the definitive purchase and sale agreement
• Help to resolve and open issues between parties
• Coordinate with seller and buyer on strategic planning issues
• Close the transaction

Typical Situation: Our client is thinking of selling the business. Maybe they are going through a divorce or IRS situation. GLM Can do a business Valuation for the purposes of determining a sale price or as a gauge of business growth. GLM cannot do a formal Valuation for the purposes of law and IRS.
 
When you hear a business owner say:
·         “I am looking to sell my business”
·         “I am looking to make a strategic acquisition”
·         “I am looking to grow my business and need help in raising capital”
·         “I need to get my business valued”
·         “I am looking to gift shares of my business and need a valuation”
 
Valuation Service Firms provide business valuations, estate/gift valuations and value everything outside of real estate and hard assets. They can also help business owners to sell their business or with raising capital.
 
How they Work They will ask questions about the ownership structure, how the business operates will look at the financial statements and forward looking projections.
 
Matching Ideas with Resources:

Typical Situation: Our client is talking about their partnership and succession planning. Maybe another business owner they know died or became disabled and their company is floundering because of it. They are trying to figure out how to figure out how to disperse an estate equitably when not all the children are involved in the business. Their company has grown since they originally drafted their buy sell agreement and want a review.
 
When you hear a business owner say:
·         “My taxes are too high.”
·         “I would hate to have to deal with my business partner’s spouse. (What happens if my partner dies or becomes disabled?)”
·         “What’s stopping my key employee from starting a business across the street?”
 
An Insurance Benefits Advisor protects business owners, their families and their businesses from the financial catastrophe that death or disability can cause. Whether it happens to a business partner, a key employee or themselves I make sure the financial impact is as minimal as possible.
 
How they Work First, they will do a deep dig to find out what the concerns are and other possible trouble points. Next, they educate on the possible solutions. Then once the client has the information needed to make a decision they implement the solution from one of our many carriers. They provide peace of mind and tax-savings ideas to business owners and successful individuals through qualified plans, life, annuities, disability, health, Medicare and long term care insurance.
 
Matching Ideas with Resources:

My dad came across the Financial Statements of his dad's business from April 1946. I scanned a page of it to the right. The way QuickBooks currently prints a Profit and Loss Statement, you have the Revenue at the top and then Costs of Goods, then Expenses and finally the Profit at the bottom, but this statement has all the Expenses, then the Revenue THEN the Profit. 
 
The numbers are interesting. As you could guess, it is a bar, a few blocks away from Wrigley Field. In 1946 the average family income was about $2,600 per year or $216.66 per month. The profit for this month was $155.78. Previous month's profits averaged $670. 
 
Why was this month so low? As I looked at the details of the financials, I saw that he bought additional beer this month. Maybe there was a deal, or added a new brand.
 
Having monthly financial statements are important for a business. They answer questions you might have. Can you take advantage of a suppliers' deal? Will purchasing equipment be a better advantage this month or next? 
 
What is your business worth? I did a quick Valuation of my Grandfather's business, based on the financials we found. At the beginning of 1946, it would be worth about $28,140. In June 1946, it would be worth over $40,000. What do you think a major factor was in the increase in the business value in those first 6 months of 1946? (Hint: When was the last time the Cubs were in the World Series?)

As we approach the end of the year, it is the perfect time to see where your business is valued. You are already looking at the tax ramifications of 2016 (right?!?) and looking at how you may end the year (right?!?!). Take some time to look at the valuation of your business.

Exploring valuation techniques requires an understanding of the tools available. Which tools are utilized depends in part on the purpose of the valuation and the circumstances of the subject company. Generally, there are several approaches to valuing a business. Within these approaches, there are several different methods. Listed below are the major approaches:

• Income Approach
• Discounted Cash Flow Method
• Single Period Capitalization of Earnings Method
• Market Approach
• Comparable Publicly Traded Company Analysis
• Comparable Merger & Acquisition Analysis
• Asset-Based Approach
• Adjusted Net Asset Method
• Excess Earnings Method

All of the above methods and approaches are frequently used business valuations tools.

​Valuation is also a good benchmark for business planning. Learning the value now, then doing the same thing next year, shows you how much progress you have made in building your business.

Back in January, I wrote about learning what your business is worth to have a benchmark. GLM has done 5 valuations since then and "Re-Valuations" since then. Most of the businesses have gone up in value since the original one was done.
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The value assessment driver of any business is the ability of the entity to generate future cash flow
or earnings. Business appraisers will assign an appropriate capitalization rate (or multiple) to a
selected earnings stream to derive an overall value for a business. The value of the net assets of a business is compared to the cash flow valuation and may be adjusted upward or downward. For example, if the earnings based valuation is less than the net asset value, an upward adjustment may be in order.
Conversely, if the net assets are negligible, a downward adjustment is more likely to occur.

Many appraisers typically use a common range of multiples to arrive at a “ballpark” indication of value (for
example, 4 to 6 times EBITDA). While this approach is commonplace it is not an accurate valuation and an in-depth valuation of the company will show the true position. There are too many intangible factors to
consider relying solely on the capitalization of earnings. Of course, the ultimate value of a company
will be determined by the marketplace. This will generally differ from a seller’s expectation, as well
as the expectations of potential acquirers.

It is not uncommon for business owners to have an inflated sense of value of their company. This is due to a variety of factors including emotional attachment to the business, unwillingness to accept the impact of the risk factors facing the business, outside influence from previous market conditions, incorrect conclusion of normalized earnings, comparable transactions, etc. Conversely, acquirers often undervalue businesses. In their quest to “buy right” they often, end up paying a lower multiple for a company with serious negative factors, while passing up on higher multiple opportunities, which, due to the quality, are actually the best buys. A business valuation is a complex process. Owners and buyers will be in a better position if they rely on professional advisors such as their accountants, business appraisers, intermediaries or investment bankers.

Know as you go
While valuing a company is not an exact science, it is also not a total mystery. Valuation is an art practiced by experienced financial professionals. Given the complexities of analyzing all the direct and indirect factors influencing a company’s value, it is often a good wise investment to have a third party valuation or appraisal by an accredited valuation analyst. Having this information prior to going to market drastically enhances your chances of selling at the best possible time and price.

As you are preparing your taxes for 2015, now may be a great time to see what your business is worth. Doing a business valuation is an important business practice. You not only need to have one done if you are considering selling your business, it is important to note the value of your business for many other reasons.

The value of a business is important to know while situations occur. Divorce or other family issues that come up bring the value of the business into play. You should know what you are dealing with before that occurs. This includes if something happens to you, the business owner. If your family needs to sell or bring in partners, they quickly know the value.

If one of your goals this year was to increase business, wouldn’t be a great idea to have a benchmark? Then next year you can have the business valuated again and see if the value increased.

If you have partners or are ever considering new partners, knowing what your business is currently worth allows for you to be more informed when talking with the partners.

As much as you might not admit it, someday you may need to exit your business. Doing a valuation now gives you a better idea as to where you stand if that someday comes sooner OR later. This Exit Strategy doesn’t always mean the sale or closing of a business, it could be included in your retirement plans.

As I mentioned before, since you are putting together your financials for 2015 for tax reasons, dig out the previous 2-3 years returns and or statements talk with your accountant about doing an informal business valuation.