Thursday, November 28, 2013

The Perfect Storm for Enhancing Value

Growth is a major value driver for many businesses.  A well documented growth story with a positive outlook for continued future growth (i.e. a sound growth plan) is very appealing to a potential purchaser.  Having a competitive advantage in your industry is another key value driver because providing something unique or proprietary is extremely attractive to a potential buyer.  Together these two value drivers create the perfect storm for enhancing value.
Researchers at the Sellability Score have recently studied the results from over 5,000 business owners who completed the Sellability Score questionnaire.  For those companies that had received an offer from an acquirer, the average offer price was approximately 3.5x pre-tax profit. 
This multiple improved to an average of 4.3x pre-tax profit after isolating those businesses that had a historical growth rate of 20% or greater.  As expected, higher growth companies commanded a higher multiple than their slower growth counterparts.  This multiple jumped even further to an average of 5.4x pre-tax profit when those companies that claimed to have a unique product or service for which they have a virtual monopoly were isolated.  These niche companies enjoyed an average multiple that was 50% more than the average companies and 20% more than the higher growth companies.
What is your growth plan for the next three to five years?  Will your growth come from selling additional products and services to your existing customers or finding new customers for your existing products and services?  The answer may have a profound impact on the value of your business.
Nurture your niche
Chasing "bad" revenue by offering a wide array of products and services is common among growth companies.  The easiest way to grow is to sell more things to your existing customers, so you just keep adding supplementary product and service lines, often at the expense of your core strengths or market niche. 
Keep in mind that a strategic purchaser for your business is looking to acquire something they cannot easily replicate on their own.  A purchaser will place less value on the revenue derived from products and services that you have in common.  They will argue that their economies of scale put them in a better position to sell the things that you both offer today.
These same purchasers, however, may be willing to pay a large premium for access to a new or proprietary product or service that they can sell to their existing customers.  Larger, mature companies have customers, systems and distribution channels, but they sometimes lack innovation.  As a result, many choose a strategy of acquisition as a way to buy their innovation.
Focusing on your niche is an area where the long-term value of your business can be at odds with short-term profit.  For example, if you wanted to maximize your short-term profit, you might avoid investing in new technology or hiring a head of sales, arguing that both investments would hinder short-term profit.  The value seeking company finds a way to deliver profit in the short term while simultaneously focusing their strategy on a finding and exploiting a niche that will drive up the value of the business.
You can increase the value of your business by documenting your historical growth and developing a sound growth plan.  If you want to supercharge your value, however, your growth plan should focus on creating a virtual monopoly in your marketplace by developing and securing your industry niche.
To find out how sellable your company currently is and what you need to tweak to improve its sellability, take Sellability Score via the questionnaire on our website.  You can complete the questionnaire here
To see if you qualify for our VSP Exit Starter Program or to find out the value of your business, contact us at www.vspltdca.

Sunday, November 17, 2013

A Must Read for Business Owners - Deciding to Sell Your Business

I recently finished an interesting book that all business owners should add to their reading list.  "Deciding to Sell Your Business – The Key to Wealth and Freedom" by Ned Minor [1] explores the notion that all business owners must first decide to sell their business before embarking on the actual sale process.
Mr. Minor is co-founder of a Denver-based law firm which focuses on designing and implementing exit strategies for privately held business owners.  Minor has coached hundreds of business owners in this area for over 30 years.  In Deciding to Sell Your Business, some of the fundamental questions that Minor addresses, along with a sneak peak at his responses, include:

    Q.  What will I do after I sell my business?
    A.  "You will have so many demands on your time that you will wonder how you ever found time to run a company."
    Q.  Why should I sell my business?
    A.  "You should sell to achieve wealth and freedom while you are still young enough to enjoy it."

    Q.  When should I sell my business?
    A.  "You should sell at the point when you achieve your definition of financial independence."
Many of the issues addressed in our VSP 6 Step Exit Planning Process are also explored in Deciding to Sell Your Business.  After reading Deciding to Sell Your Business, Minor suggests that business owners will likely find themselves in one of the following situations:
  1. You are emotionally ready and your company is ready for sale at maximum price
  2. You are emotionally ready but your company is not ready to be sold for maximum price
  3. You are not emotionally ready and your company is not ready
  4. You are not emotionally ready but your company is ready
  5. You are ready to sell but a sale of your company will never generate financial independence
  6. Your company will always generate a salary for you but it is not saleable
If both you and your business are ready, Minor suggests that you assemble your Advisory Team and initiate the sale process.
If you are ready but your business is not, Minor recommends calling a meeting with your Advisory Team to discuss value drivers and develop a value enhancement action plan, one that will help you achieve a target company value that will yield the desired net sale proceeds.  This is also Minor’s suggested course of action if both you and your company are not ready for a sale.
If your company is ready but you are not ready, Minor suggests that you determine where you want your company to be (i.e. the next level for your business) and assess how long it will take to achieve.  Once attained, you should then reassess your state of readiness and that of your company to ensure both are in alignment.
If you are ready but selling your company will likely never get you what you need then you should consider selling out and buying into another venture.  Minor suggests that you keep trading up until you own a company that has the growth capacity to be sold at a price that will enable you to achieve your financial independence.
If you think your company is not saleable, it is Minor’s experience that there is usually a buyer for every business.  To entice a buyer, however, you may have to carry back a significant portion of the purchase price and/or may have to remain in the company for a longer period of time after the sale.
If you want to prepare for the significant transfer of business wealth expected over the coming decade you must begin the planning process early.  Reading Deciding to Sell Your Business or attending the VSP Exit Starter Program would be a great place to start.  To learn more about Mr. Minor or to order your copy of Deciding to Sell, visit  For details regarding the VSP Exit Starter Program contact us at or
1.  First Edition, 2003, Business Enterprise Institute, Inc.

Monday, November 04, 2013

The VSP Exit Starter Program – Your Wealth Transfer Survival Guide

Are you planning to exit your business in the coming decade?  Have you started preparing for a successful internal transfer (e.g. family, management, employees, shareholders) or an open market sale to a third party?  Do you want to maximize your net sale proceeds and achieve your goals when you exit?  Do you want to be prepared in the event of a forced exit due to disability, divorce, dispute or death?
If these questions don’t concern you then read no further – this program is not for you.  If, however, these questions have crossed your mind and do concern you then the VSP Exit Starter Program may be perfect for you.
An unprecedented transfer of business wealth is expected over the coming decade.  Going to market unprepared will result in selling for a significant discount or a possible liquidation altogether.  An internal transfer to family, management, employees or other shareholders can fail miserably without proper planning.
You can kick start the planning process by letting the professionals trained and experienced in exit planning, business valuation and value enhancement guide you through a structured process in an economic manner with minimal time commitment and interference in your day to day responsibilities.
Over the course of the following four half-day sessions you will develop your personalized action plan and begin to assemble your exit planning binder to ensure you are: i) able to leave your business on your terms; and ii) prepared for an unexpected and forced exit due to disability, divorce, dispute or death:

Half-Day Session
Topics Covered
#1 – Laying the Foundation
  • The 5 key initial questions you must address
  • Detailed review of the 6 step exit planning process
  • Building a competent professional advisory team
#2 – Business Valuation and Value Enhancement
  • Business valuation basics
  • How to value your business
  • The key to enhancing business value and salability
#3 – Developing the Action Plan
  • Strategic planning session
  • Revisiting goals, identifying obstacles
  • Brainstorming strategies to overcome obstacles
  • Prioritize and identify action planning items
#4 – Building the Binder
  • The exit planning binder
  • The internal transfer / succession binder
  • The pre-sale due diligence binder

Through private or group sessions you can join an elite group of business owners that are not only committed to the planning process but also recognize that implementation is the key to success.
Group sessions include a personalized Sellability Score Report which allows you to gauge how attractive your business currently is to a potential purchaser.  Most business owners find this to be a great starting point as it highlights some of your company’s current strengths and weaknesses in terms of its "sellability".
Private sessions allow you the option of sharing relevant information to find out from experienced business valuators the value of your business given the private and confidential nature of the discussions.  As I have discussed in the past, an independent business valuation is the first step in the value enhancement process, helps to avoid costly legal disputes and manages value expectations which improves the likelihood of completing a sale transaction when the time comes.
Group sessions will begin in March 2014 and registration is limited to an exclusive group of 10 businesses.  To find out if you qualify for the VSP Exit Starter Program and for pricing information, contact us at or 905-305-VSPL (8775) or