tag:blogger.com,1999:blog-32159661792314287482024-03-08T05:46:30.246-05:00GTA ValuatorNews and views from a GTA Business Valuator with Valuation Support Partners Ltd. www.vspltd.caJason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.comBlogger120125tag:blogger.com,1999:blog-3215966179231428748.post-56085445533009840072017-08-06T20:38:00.001-04:002017-08-06T20:38:33.243-04:00Driving Value with the Switzerland Structure<div align="justify" style="background-color: white; text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Increasing the value of your business requires an understanding of the 8 key value drivers. The first two value drivers, <strong>Financial Performance</strong> and <strong>Growth</strong>, were discussed last month. This month we address the third value driver, <strong>Switzerland Structure</strong>. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Switzerland Structure refers to how dependent your company is on any one customer, supplier or employee. The greater the dependence, the greater the risk and the lower the value. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br /><strong>Customers </strong></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />What would happen to your company's profitability if you lost a customer who accounted for over 50% of your total revenues? Potential purchasers perceive companies that are overly dependent on any one customer to be much riskier to acquire and may be dissuaded from acquiring the business. At best, they may offer to acquire your business for a deeply discounted valuation multiple. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br />To maximize the value of your business, strive to have your top 5 customers account for less than 20% of total revenues.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />What would happen to your input costs if a major supplier that you are dependent on decided to increase costs or restrict volumes? Companies that are dependent on any one supplier for a significant portion of purchases are perceived to be much riskier companies to acquire. Potential investors may stay away from your business altogether or offer to acquire the business based on a much lower valuation multiple.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />To maximize the value of your business, strive to acquire your inputs from at least three or more different suppliers.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />What would happen to your business if your sole sales rep, who is responsible for over 50% of the company's revenues and has personal relationships with your customers, resigned? Companies that are dependent on a key employee are riskier companies to acquire and will likely sell for a reduced valuation multiple.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />To be as valuable as possible, your company needs a sales team - not just a single salesperson. Hiring a single sales rep will only keep your business reliant on one person - you need to build a sales team. Here are three tips for building a sales team:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />1. <strong>Charge customers up front</strong> - sales reps are expensive to find and train. Consider charging some or all of your customer bills up front so you will have more cash to build your sales team and more time for them to train up.<br /><br />2. <strong>Carve territory into small chunks</strong> - carve up your market into sales territories or service lines that provide enough opportunity for multiple sales reps to make money.<br /><br />3. <strong>Hire a second rep as quickly as possible</strong> - start by hiring two sales people, not just one. Sales people thrive on competition, and in order to be a sellable company, you need to be able to demonstrate to a buyer that your sales are driven by a sales team and not just one high performing salesperson.<br /></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Businesses that are not dependent on any one customer or supplier and can easily replace their top salesperson are more than twice as likely to get an offer to buy their business as those companies who are overly reliant on a single customer, supplier or salesperson. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Would you like to know where your company ranks under the <span style="text-decoration-line: underline;"><strong>Switzerland Structure </strong></span>value driver? Take 13 minutes to complete the <a alt="http://score.valuebuildersystem.com/en#started" href="http://score.valuebuildersystem.com/en#started" linktype="1" shape="rect" target="_blank" track="on">Value Builder Score</a> and receive your score out of 100.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Empirical evidence shows that companies with a Value Builder Score of 80+ receive offers that are 71% higher than the average business! Simply put, reducing your company's dependence on any key customer, supplier or employee will increase the value of your business.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-53641620390326572752017-06-07T10:37:00.000-04:002017-06-07T10:37:33.023-04:00Driving Value with Growth<div style="background-color: white; text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">To increase the value of your business an understanding of the 8 key value drivers is essential. The first key value driver, <strong>Financial Performance</strong>, was discussed previously. Now we address the second key value driver, <strong>Growth</strong>. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Increasing the likelihood for growth and the anticipated growth rate will increase the value of your business. It will also attract a greater number of potential purchasers for your business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">It is one thing to <span style="text-decoration-line: underline;">say</span> that your business has growth opportunities. It is another thing to actually <span style="text-decoration-line: underline;">demonstrate</span> that your business is scalable. Showing that you had a growth plan in place and that you successfully implemented that growth plan gives your current growth plans more credibility. This adds tremendous value in the eyes of a potential purchaser.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><strong>The Takeaway </strong></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you want to increase the value of your business and have never prepared a written growth plan, do one today! Prepare a written growth plan for the coming 1, 3 year and 5 year periods. If you want your future growth plans to be credible, you must <span style="text-decoration-line: underline;">document</span> your current growth plan, the implementation strategy and the results. You should also obtain an independent business valuation today so you can benchmark the future value enhancement results. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><strong>Growth = Size and Scalability</strong></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Larger businesses are perceived to be more substantial and stable organizations than smaller companies. These businesses have found a way to grow beyond the efforts of the owner(s) and become less reliant on the owner(s). </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Investors consider smaller companies to be riskier than larger organizations and this additional risk manifests itself as a lower valuation multiple being applied to the company's annual cash flows/earnings. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">A company with a scalable business model is much more valuable. But, does your business have the infrastructure necessary to scale its operations? What are your company's options? Consider the following:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">1. <strong>Geographic Scalability</strong> - applying your business model in another city</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">2. <strong>Cultural Scalability</strong> - applyling your business concept in another culture</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">3. <strong>Horizontal Scalability</strong> - selling new products/services to existing customers</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">4. <strong>Vertical Scalability</strong> - providing existing products/services to new customers</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Or, you can turn to The Ansoff Matrix which considers the following four growth strategies:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">1. <strong>Market Penetration</strong> - selling existing products to existing customers</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">2. <strong>Product Development</strong> - selling new products to existing customers</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">3. <strong>Market Developmen</strong>t - selling existing products to new markets</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">4. <strong>Diversification</strong> - selling new products to new markets</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The first two items are lower risk options given that existing customers are generally the ones who know and like the business the most and are often pleased to find out that the business offers something else they need. Let's take a closer look at these two options:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><strong>Existing Products to Existing Customers (Market Penetration)</strong></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Consider a hardware store with a key cutter hidden off in the corner. Despite the huge mark-up on cutting keys, sales are very low because nobody can see the key cutter. By moving the key cutter up front beside the cash register customers begin to see the cutter and realize that the hardware store cuts keys. Not surprisingly, many more keys are sold to existing customers, which increases the overall revenue per customer.</span></div>
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<strong><span style="font-family: Trebuchet MS, sans-serif;">New Products to Existing Customers (Product Development)</span></strong></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Consider a BMW dealership whose typical client is an affluent family man in his forties. After saturating the market for wealthy forty-something men, the dealership decided to think of the customer as the financially successful family rather than only the patriarch. Instead of trying to sell more BMWs into a market of diminishing returns, the owner bought a Chrysler dealership so he could sell minivans to the spouses of his BMW buyers - a new product to the existing customer. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Existing and loyal customers trust and respect the business and its representatives. Identifying and meeting a separate or supplemental need for those customers will result in sales growth and value enhancement. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Would you like to know where your company ranks under the <span style="text-decoration-line: underline;"><strong>Growth</strong></span> value driver? That's where the Value Builder Score comes in where business owners complete a 13-minute questionnaire to receive their Value Builder Score out of 100. <a alt="http://score.valuebuildersystem.com/en#started" href="http://score.valuebuildersystem.com/en#started" shape="rect" style="color: blue;" target="_blank">http://score.valuebuildersystem.com/en#started</a> </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Empirical evidence shows that companies with a Value Builder Score of 80 or more receive offers that are 71% higher than the average business! Simply put, improving your company's Growth Potential will increase the value of your business.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-42900684461014961832017-01-18T09:07:00.000-05:002017-01-18T09:07:42.966-05:00Driving Value with Financial Performance<div align="justify" style="background-color: white; color: #003fa5; font-size: 14.6667px; text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Do you want to increase the value of your business? Are you focused specifically on increasing the value of your business or are you simply hoping that its value will increase as a by-product of focusing on increasing sales or providing 5 star customer service?</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />A recent client was focused on just that - increasing sales and providing 5 star customer service. Sales did increase but at the expense of margin reductions. Our client was accepting lower prices to attract new customers and increase sales volumes to existing customers. Over a three year period, there were no significant changes to the bottom line. As a result, the company's value did not increase. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Value is ultimately driven by a company's future income or cash flow expectations. Increasing your operating cash flows and minimizing the risk associated with achieving and/or exceeding the anticipated cash flows will increase the price an acquirer is willing to pay for your business. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />I recently introduced you to the Value Builder SystemTM, a statistically proven coaching program to help you increase the value of your business that starts with obtaining your Value Builder Score. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br />The first value driver addressed in determining your company's Value Builder Score is <b>Financial Performance</b>. Your company's financial performance includes its history of producing revenue and operating cash flows combined with the professionalism of your record keeping. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br />Increasing your company's annual operating cash flows can be achieved by increasing revenues and/or decreasing costs. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br />To increase revenues you can increase your prices or increase volumes. Some strategies to consider to increase sales volumes include:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />1. Selling more existing products to existing customers (market penetration);<br />2. Selling new products to existing customers (product development);<br />3. Selling existing products to new markets (market development); and<br />4. Selling new products to new markets (diversification).<br /></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">To decrease costs you can look at ways to reduce direct material and direct labour costs which will help increase your gross margins. You could also focus on reducing other operating expenses and overheads to improve your net profit margins. Various outside consultants can assist in this area. Companies like Salvis Group can help improve operating systems/processes to improve efficiency and reduce costs. Companies like Expense Reduction Analysts can identify general and administrative cost savings to improve your bottom line. There are also companies that specialize in providing research and development tax credit recoveries to increase your company's operating cash flows.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Improving the quality and integrity of your financial reporting (e.g. monthly, quarterly or year-end financial statements) can also help increase your company's value. This can be accomplished by improving your accounting information system or upgrading to a review engagement or audit. Potential purchasers may be willing to pay more for a company with a quality financial reporting system that produces accurate and reliable financial statements and other financial reports.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Wouldn't you like to know where your company ranks under the <b>Financial Performance</b> value driver? That's where the Value Builder Score comes in where business owners complete a 13-minute questionnaire to receive their Value Builder Score out of 100.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Empirical evidence shows that companies with a Value Builder Score of 80 or more receive offers that are 71% higher than the average business! Simply put, improving your company's Financial Performance will increase the value of your business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />Over the coming months I will continue to expand upon how the other key value drivers can increase the value of your business. I will provide examples for each and discuss what you can do to improve your company's ranking in each of the 8 key value drivers.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-66845026557408850502017-01-10T16:00:00.000-05:002017-01-10T16:00:50.521-05:00Summarizing the 8 Key Value Drivers<div style="background-color: white; text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">You may not be looking to sell your business any time soon. Y</span><span style="font-family: "Trebuchet MS", sans-serif;">ou may not have started planning for the departure from your business despite the fact that a</span><span style="font-family: "Trebuchet MS", sans-serif;">ll business owners will one day exit their business (voluntarily or involuntarily due to death, disability, disaster, divorce or dispute).</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Are you, however, looking to increase the value of your business and continue to build your wealth?</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Value is ultimately driven by a company's future income or cash flow expectations, and the future is inherently uncertain. Increasing your operating cash flows and minimizing the risk associated with achieving and/or exceeding the projected operating cash flows will increase the price an acquirer is willing to pay for your business. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">I recently introduced you to the Value Builder System(TM), a statistically proven methodology for increasing the value of your business. Business owners can complete a 13-minute questionnaire and receive their Value Builder Score out of 100. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">In order to truly understand your Value Builder Score you need to appreciate where your company stands in each of the following 8 key value drivers:</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>1. Financial Performance</b> - your history of producing revenue and profits combined with the professionalism of your record keeping. Greater revenues and profit margins lead to higher value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>2. Growth Potential </b>- your likelihood to grow your business in the future and at what rate. A proven track record of meeting and/or exceeding prior growth targets (revenue and profits) and a solid business plan with future growth projections will increase value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>3. Switzerland Structure</b> - how dependent your business is on any one employee, customer or supplier. Minimize your company's dependence on a key employee, customer or supplier to lower your risk profile and maximize value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>4. Valuation Teeter Totter</b> - your ability to manage working capital and continue to generate positive cash flow. A strong balance sheet with excess working capital and positive cash flow from operations on a monthly basis will increase value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>5. Recurring Revenue </b>- the proportion and quality of automatic, annuity-based revenue you collect each month. The more revenues you have locked up under long-term contracts or under an automatic subscription basis, the higher the value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>6. Monopoly Control </b>- how well differentiated your business is from competitors in your industry. A strong niche and/or competitive advantage in your marketplace will increase value.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>7. Customer Satisfaction </b>- the likelihood that your customers will re-purchase and also refer you. Increase your number of satisfied and loyal customers that refer you to others and you will increase your company's value.</span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>8. Hub & Spoke </b>- how your business would perform if you were unexpectedly unable to work for a period of three months. Minimize or eliminate your company's dependence on you, the owner, and you lower your risk profile and increase your company's value.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Wouldn't you like to know where your company ranks in each of these key value driver areas? Armed with this information you can zero in on the value drivers that need improvement and identify where to focus your efforts and attention to increase the value of your business. That's where the Value Builder Score comes in. <a alt="http://www.valuebuildersystem.com" href="http://www.valuebuildersystem.com/" shape="rect" style="color: blue;" target="_blank">www.valuebuildersystem.com</a> </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Empirical evidence shows that companies with a Value Builder Score of 80 or more receive offers that are 71% higher than the average business! Simply put, improving your company's performance on these 8 key value drivers will increase the value of your business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Join me over the coming months as I expand upon how each of these key value drivers will serve to increase the value of your business. I will provide examples for each and discuss what you can do to improve your company's ranking in each of the 8 key value drivers.</span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-18952775999042272242016-10-13T13:07:00.000-04:002016-10-13T13:07:57.014-04:00The Value Builder System - A Systematic Approach to Increasing Business Value<div align="justify" style="background-color: white; color: #003fa5; text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">To further enhance my 17+ year career in business valuation as a Chartered Professional Accountant, Chartered Business Valuator, Accredited Senior Appraiser and Certified Exit Planning Advisor, I recently attended the Value Builder System training program in Toronto (<a alt="http://www.valuebuildersystem.com)" href="http://www.valuebuildersystem.com%29/" shape="rect" style="color: blue;" target="_blank">www.valuebuildersystem.com)</a>.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />The Value Builder System is a statistically proven methodology for increasing the value of a business. Business owners complete a 13-minute questionnaire and receive their Value Builder Score out of 100. Companies with a score of 80+ typically receive offers that are 71% higher than average scoring businesses. This questionnaire focuses on 8 key attributes that drive the value of a business. The resulting assessment addresses the specific factors that will increase the value of your business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><br />The Value Builder Score and resulting Value Builder Assessment are fantastic tools for business owners to identify opportunities to enhance the value of their business. What I like about the Value Builder System is that it was created by someone with actual experience building and selling four separate businesses, the most recent of which was a market research firm, and vetted by various M&A and valuation professionals. John Warrilow's background and experience in market research has allowed him to analyze the results of more than 20,000+ Value Builder Score questionnaires and show that there is a<span style="text-decoration: underline;">direct</span>, <span style="text-decoration: underline;">quantifiable</span> relationship between your Value Builder Score and the value of your business. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"> <br />As an experienced business valuation professional I can attest to the fact that the Value Builder Score is truly based on 8 of the key factors that drive business value - factors that we at VSP consider in each business valuation we perform. It is these 8 key value drivers and how they affect a company's Value Builder Score that we will be sharing with you over the coming months. I hope that you will stay tuned...</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-39277807750645543392015-07-17T19:47:00.000-04:002015-07-17T19:51:00.150-04:00August 1, 2015 Book Release - The Undiscovered Planning Tool for Business Owners<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Many business owners will admit that they do not know the current value of their business. Worse yet, those who claim to know the value will grossly overestimate or underestimate the value of their business, with serious repercussions.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Understanding the value of one’s business is critical. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">I have worked with business owners and their professional advisors (e.g. accountants, lawyers, etc.) for many years on matters involving business valuation. I am often called when there is an immediate need to determine the value of a business or security – which could be in the context of an actual transaction, a legal dispute, a corporate reorganization or a matrimonial separation.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">It became apparent to me that a business valuation can be a very powerful planning tool for business owners. Despite the tremendous benefits, I find that obtaining an independent business valuation is still a largely undiscovered planning tool among business owners.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">I started this blog a few years ago with the intention of disseminating valuable information to the business and legal communities regarding various topics related to business valuation, including the use of a business valuation as a planning tool.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Getting an independent business valuation done now provides the shareholders with a valuation template for future updates. It also provides the basis for shareholders to discuss major assumptions underlying the value conclusions and key drivers effecting value.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">An independent business valuation is something that should be done before it needs to be done and is extremely useful for a number of reasons.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It helps manage value expectations.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It helps enhance business value.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It helps avoid legal disputes.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It is integral for exit planning.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It is required for tax and estate planning.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">•<span class="Apple-tab-span" style="white-space: pre;"> </span>It is vital for contingency planning.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">I elaborate on each of these throughout The Undiscovered Planning Tool for Business Owners. I will also share some experiences involving business owners who have successfully incorporated an independent business valuation into their planning as well as actual situations illustrating the consequences of not including an independent business valuation into the planning process. Finally, I address some of the common reasons why business owners avoid exit planning and how these barriers can be broken down. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If any of this resonates with you, my hope is that you are motivated to be more proactive, positive and successful when it comes to setting and achieving your goals.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">For more information or to pre-order your copy today <a href="http://www.undiscoveredplanningtool.ca/">www.undiscoveredplanningtool.ca</a> </span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-82523362416401876822015-01-25T15:53:00.000-05:002015-01-25T15:53:45.669-05:00Want to Maximize Your Net Proceeds? Don’t Neglect Your Working Capital!<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Cash flow measures the cash coming in and going out of your business whereas income is an accounting interpretation of your company’s net earnings or loss over a period of time. For example, if you charge $10,000 upfront for a service that takes three months to deliver, you would recognize $3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to perform the work. But since you charged upfront, you receive all $10,000 in cash on the day your customer decides to buy. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">This positive cash flow cycle improves the value of your company because when it comes time to sell your business, the buyer will have to write two cheques: one to you, the owner, and a second to your company to fund its working capital (i.e. the cash your company needs to fund its immediate obligations like payroll, rent, etc.). Both cheques, however, are drawn from the same bank account. Therefore, the less the acquirer has to inject into your business to fund its working capital, the more money it has to pay you, the seller. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The inverse is also true. If your company is a cash drain, an acquirer will have to inject working capital into your business on closing day, which will reduce the purchase price for the business (i.e. reduce the amount paid to you as the seller).</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you want to maximize your net proceeds on sale it is important to manage your cash flow and ensure a positive working capital position on closing. There is value associated with excess working capital by virtue of being able to either: i) liquidate current assets and extract cash from the business without affecting ongoing operations; or ii) borrow this amount from a lender (e.g. bank) using current assets as collateral and then extract the cash from the business without affecting ongoing operations. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">In an actual transaction the buyer and seller will negotiate a "normalized" working capital amount required for ongoing operations (e.g. based on actual historical balances, AR and AP collection policies, inventory turns, industry averages, anticipated growth, etc.). Any amount over (under) this "normalized" working capital will be reflected as an increase (decrease) to the purchase price on closing.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>One Thought For Improving Your Cash Flow</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">There are many ways to improve your company’s cash flow and, as a result, its value. One often overlooked tactic is to spend less on the capital assets your company needs to operate. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">In the restaurant business, for example, it may take three bankruptcies at a single location before any restaurant can make money. The first owner of a restaurant walks in and pays cash for a brand new commercial kitchen thus depleting his cash reserves before opening night. Within a year, the restaurant owner runs out of cash and declares bankruptcy.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Along comes a second entrepreneur who decides to set up her restaurant at the same location and buys all of the new equipment from the first owner’s creditors for 70 cents on the dollar, figuring she has made a wonderful deal. But the outlay of cash is still too great and she too is out of business within a year.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">It’s not until the third owner comes along that the location actually survives. He saves his cash by buying all of the equipment off the second owner for 10 cents on the dollar. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The moral of the story - find a way to reduce the cash you spend on your capital assets. Can you buy your equipment used at an auction or online? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent instead of buying?</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Profits are a very important factor in determining your company’s value but so is the cash your company generates. Don’t neglect your company’s cash flow and working capital if you want to maximize business value and ultimately the net proceeds you receive on the sale of your business.</span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-53899295403553341052014-11-23T14:36:00.000-05:002014-11-23T14:36:40.495-05:00Want to be More Valuable Than Your Industry Peers?<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">The value of your company is dependent upon many things, including your industry. When we look at businesses within the same industry, there are major variations in valuation. Here are 10 things that will make your company more valuable than its industry peer group. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>1. Recurring Revenue</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>2. Satisfied Customers</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>3. Diversification</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Acquirers will pay a premium for companies that naturally hedge the loss of a single customer. Ensure no customer amounts for more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>4. Growth</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your overall industry. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>5. Predictability</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you have mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who does not have a clue where their next customer will come from.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>6. A Management Team</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Companies with a management team or second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>7. Something Unique</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>8. Location</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you will have buyers willing to pay a premium for you business in its location.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>9. Media Hype</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry. If you are the darling of your industry trade media, expect to get a premium acquisition offer. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><b>10. Clean Books</b></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Companies that invest in audited statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more. You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-55599191968801179612014-09-28T21:43:00.000-04:002014-09-28T21:43:32.635-04:005 Ways to Increase Your Odds of Receiving an Unsolicited Offer<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">In any negotiation, being the person who makes the first move usually puts you at a slight disadvantage. The first-mover tips their hand and reveals just how much he/she wants the asset being negotiated.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Likewise, when considering the sale of your business, it is always nice to be courted, rather than being the one doing the courting. The good news is, the chances of getting an unsolicited offer from someone wanting to buy your business are actually increasing. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">According to the Q2, 2014 Sellability Tracker analysis released in July 2014, 16% of business owners have received an offer in the last year, which is up 37% over Q1. Said another way, you’re 37% more likely to get an offer to buy your business today than you were at the beginning of the year.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Big companies are buying little ones for a lot of reasons and the current market conditions are accelerating their appetite: interest rates are low and stock markets are high, which provide the ideal platform for acquirers to realize a return on their investment from buying a business like yours. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">So how do you ensure you are on their shopping list? Here are five ways to get noticed by an acquirer:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">1. Win an award</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Getting recognized as the “Widget Maker of the Year” by the Widget Makers Association is a great way to get the attention of acquirers in your industry.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">2. Hire a PR person</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Engaging a public relations professional to tell your story to the media can get you on the radar of buyers in your industry. A lot of media relations professionals focus on the big mainstream publications, and while these are important, ensure that your PR firm also targets trade publication and industry-specific websites that are read by acquirers in your industry.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">3. Host an event</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Consider hosting an event (e.g., conference, tradeshow, summit) for your industry and invite representatives from potential acquirers to attend. Being invited to an industry event can be flattering for acquirers and it is a good way to get them to notice you as an industry leader.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">4. Join a board</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If an executive from a company you think would make a natural buyer for your business is serving on a board of directors, consider joining the board. Serving on a board together can be a great way for an acquirer to notice you and your company without you having to say you’re for sale.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">5. Grab lunch</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Consider inviting a senior executive from a potential acquirer to share a meal under the guise of discussing trends in your industry. At the very least, you may glean some useful information about how big companies are seeing your industry evolve. At best, your lunch mate may realize that your company could play a key role in helping them grow.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The sale of your business is a delicate dance where it is usually better to be the courted, rather than the courter. Acquirers are on the hunt for new businesses, and having them notice you will put you in a position of strength when you get to sit down at the negotiation table.</span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-90464789579978837932014-09-12T22:45:00.000-04:002014-09-12T22:45:51.481-04:00Breaking Down Barriers <div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Are you passing your business on to the next generation? Will you be selling to management or an employee group over time? Would you like to maximize your net proceeds on a sale to an independent third party buyer?</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Whether you plan on selling your business to an internal party over time or to an external third party for maximum proceeds, your success depends on how much effort you put into your planning and preparation.</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Getting started is often the hardest part. We learned from Newton that, <i>“An object at rest stays at rest and an object in motion stays in motion….”</i> Excuses are your biggest roadblock to getting started. It’s too early for me… I’m too busy... It’s too complicated… It’s too expensive... and so on.</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">What’s really behind these excuses? Understanding this may be just what you need to set in motion something that will “stay in motion” until your goals are achieved. </span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Here are some tips for overcoming the most common excuses that are preventing you from getting started:</span></div>
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<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;"><b>Your mind</b> - Your mind can be your main ally when it comes to achieving your goals. If, however, your mind is not programmed for success, it will do more to derail your efforts than to help you. Visualize where you want to be after you exit your business and how it will feel when you get there. This will give you the motivation to act.</span></li>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;"><b>Your fear</b> - Change makes most of us nervous – even if it is a change in the right direction. You may not be consciously aware of the fear you have over leaving your business. Until you conquer this fear, your exit planning efforts will be blocked by self sabotage and procrastination. Tackle your fears by believing that something must change, that you must change it and that you can change it.</span></li>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;"><b>Your commitment</b> - We live in a commitment-phobic world, so it's no wonder that people routinely abandon their goals. If you truly want to achieve your goals when you exit your business then your commitment to the process is critical. The margin between success and failure is bridged by your commitment. Don't give up until your goals have been achieved. If you don't give up, then you'll never fail. There are two options in life, excuses or results. Which do you want? </span></li>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;"><b>Your patience</b> – Exit planning takes time and there are a number of issues to address. It took time to build your business and it will take time to exit the business – that is if you want to exit on your terms. When you find your patience wavering, review your goals - are they specific, measurable, realistic and attainable? Remember, slow and steady wins the race. You will be surprised with how much can be accomplished within a three year period after 12 quarterly meetings!</span></li>
<li style="text-align: justify;"><b style="font-family: 'Trebuchet MS', sans-serif;">Your support network</b><span style="font-family: 'Trebuchet MS', sans-serif;"> – Taking on this task alone will leave you less challenged, less accountable and more likely to fail. There are many helpful resources out there. Reach out to experts to assist you through the process. Do some research and speak with colleagues and/or other business owners that have been through the process successfully. Surround yourself with positive and supportive people. Look for a professional advisor with exit planning credentials and experience to guide you through the process and involve the specialists where and when needed.</span></li>
</ol>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Contact us at jason@vspltd.ca or www.vspltd.ca to help you kick-start the exit planning process. We can help you set your exit plan in motion and assist you with the implementation to ensure you exit on your terms at a time of your choosing.</span></div>
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<span style="font-size: x-small;"><span style="font-family: 'Trebuchet MS', sans-serif;">1. </span><span style="font-family: Trebuchet MS, sans-serif;">Inspired by Daryl Devonish, Co-Owner, Body Pump Inc. (www.bodypumpinc.com). </span></span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-56139598441819347932014-09-01T22:04:00.000-04:002014-09-01T22:04:21.700-04:00Will Your Goals Be Thwarted by These Excuses?<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">All business owners exit their business eventually. Planning is critical if you want to ensure a successful transfer of your business - whether that transfer be internal (i.e. to another shareholder, a management group or the next generation) or external (i.e. to an independent third party).</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">According to a recent CFIB study, less than 10% of business owners have a formal written plan, 40% have an informal plan and over 50% have no plan whatsoever. [1] Why have so many business owners avoided planning their exit? </span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Does this include you and, if so, what is holding you back? </span><span style="font-family: 'Trebuchet MS', sans-serif;">Here are the top 5 excuses that prevent business owners from beginning their exit planning:</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Excuse #1: It’s <u>too early</u> for me to plan for succession</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Fact: It is never too early. Planning should begin at least 3 to 5 years prior to exit because there are many issues that require time to adequately address. Identifying your exit option early (e.g. internal or external) is extremely important. Identifying how much you will need financially when you exit is critical. Allowing sufficient time to enhance the value of your business and ensure proper tax plans and structures are in place to minimize tax on the transfer before exit is also vital. Beginning your planning early could mean the difference between success and failure. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Excuse #2: I’m <u>too busy</u> </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Fact: You are never too busy to do that which is important - it’s a matter of prioritization. If ensuring a successful transition to the next generation or maximizing your net proceeds on the sale to a third party is important to you then you will make time for the planning that is necessary to ensure these goals are achieved. If you are truly serious about meeting your transition goals and understand the importance of planning then you will make it a priority. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Excuse #3: It’s <u>too complicated</u> and I don’t know where to begin </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Fact: It can be complicated but that has not stopped others from starting their exit planning. There are many helpful resources out there. Reach out to experts to assist you through the process. Do some research and speak with colleagues and/or other business owners that have been through the process successfully. Surround yourself with positive and supportive people. Look for a professional advisor with exit planning credentials and experience to guide you through the process and involve the specialists where and when needed. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Excuse #4: It’s <u>too expensive</u></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Fact: Exit planning is an investment that should form part of your “wealth management” budget. You pay professionals to “manage” your portfolio of publicly traded securities. According to The One Percent Solution, privately held business owners should invest 1% to 2% of the value of their business each year on exit planning initiatives (e.g. business valuation, value enhancement initiatives, life insurance, tax and estate planning, etc.) [2] This investment will pay off in the form of a higher business value (or price received) and less taxes paid, resulting in more money in your pocket - not to mention the decrease in stress knowing that your affairs are in order. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Excuse #5 – I don’t want to think about leaving my business</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Fact: You may not want to think about leaving your business but you will leave your business one day. The departure from your business will be voluntary at at time of your choosing or it will be involuntary as a result of your death, disability, disaster, divorce or disagreement. Would you rather exit your business on your terms or have your family deal with your unexpected forced exit? Who will run the business? Will it be salable? Will it be dissolved? Will there be taxes to pay? Start planning now so you can choose while you still have the control to make a choice. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you would like to sell your business within the next 5 years, you have a tremendous opportunity to sell for a significant premium - provided you conduct the proper planning! Those business owners that ignore planning could end up selling for a significant discount or face liquidation altogether.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Are you part of the 50% of business owners that have no plan whatsoever? If so, what is holding you back? Join me next time when we address how to overcome what is holding you back.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">1.<span class="Apple-tab-span" style="white-space: pre;"> </span>Source: CFIB Research Report November 2012 “Passing on the Business to the Next Generation”</span></div>
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<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">2.<span class="Apple-tab-span" style="white-space: pre;"> </span>Source: The One Percent Solution, Z. Christopher Mercer, 2007.</span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-35057690719607515672014-07-28T10:46:00.000-04:002014-07-28T10:46:09.125-04:006 Ways to Profit From Your Vacation<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Summer may be the perfect time to increase the value of your company. The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that can operate effectively without the owner’s presence and likely require a steep discount for a business that is dependent on its owner. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">This summer, consider taking an extended break from your business to see how things will run when you are not around. It is likely that some things will go wrong, but use those errors as feedback for making your business operate more independently of you, and therefore more valuable. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Here is a six-step plan for profiting from your vacation time this summer:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 1: Schedule your vacation plus one day</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later. That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 2: Log the mistakes</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">When you return, make a summary of the things that went wrong and categorize them into one of three buckets:</span></div>
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<li><span style="font-family: 'Trebuchet MS', sans-serif;">Mistakes: errors where there is a right and wrong answer;</span></li>
<li><span style="font-family: 'Trebuchet MS', sans-serif;">Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;</span></li>
<li><span style="font-family: 'Trebuchet MS', sans-serif;">Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.</span></li>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 3: Correct the mistakes</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The first and easiest place to start is to simply correct the mistakes that were made. Usually mistakes are due to a lack of training rather than outright negligence. The right answer may be crystal clear in your head but not immediately obvious to your staff. Write up some instructions for next time the employees face the same situation. Make sure your instructions are clear, and share them with your team so everyone has them.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 4: Unblock your bottlenecks</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you are being asked for your personal input on projects, there’s probably going to be a bottleneck if you are not around. Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t. Some employees may wrongly think that you need to approve all decisions. Make it clear when you want them to act alone and when you still need to be involved.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 5: Re-assign stalled projects</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The hardest part of making your business less dependent on you is dealing with projects that get stalled when you are away. Start by asking yourself if you are the right person to lead the project in the first place. As the owner of your business, projects often fall in your lap by default, rather than because you are the best person to lead them. Categorize your stalled projects into two groups: a) strategic projects that you need to lead; and b) non-strategic projects you are leading by default. Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Step 6: Give your employees authorization</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">At Ritz Carlton Hotels, every employee has discretion to spend up to $2,000 on a guest, without approval from their general manager. The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later. Many employees know how to make a customer happy but lack the confidence to act. Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The sunshine is beckoning, so go ahead and take a vacation – if you follow the six steps here, you may end up with a tan and a more valuable company. </span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com1tag:blogger.com,1999:blog-3215966179231428748.post-71235349179676411712014-07-13T15:59:00.000-04:002014-07-13T15:59:13.290-04:00Estate Executors – How to Increase Your Protection and Minimize Your Risk<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">The executor of an estate with business interests should obtain an independent professional business valuation as support for the values used in the estate administration tax (“EAT”) filing, particularly in light of recent changes to EAT legislation and the potential for personal executor liability.</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">At the time of probating the will, EAT (previously known as “probate fees”) of 0.5% must be paid on the first $50,000 of estate assets and 1.5% on the value of the remaining assets. [1] The estate representative (i.e. executor or trustee) has many responsibilities, including:</span></div>
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<li><span style="font-family: 'Trebuchet MS', sans-serif;">Filing an affidavit as to the estimated value of the estate; </span></li>
<li><span style="font-family: 'Trebuchet MS', sans-serif;">Remitting the EAT on the estimated value; and </span></li>
<li><span style="font-family: 'Trebuchet MS', sans-serif;">Providing an undertaking to file, within six months, a sworn statement of the total value of the estate, and to pay the balance of any additional tax owing (if any).</span></li>
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<span style="font-family: 'Trebuchet MS', sans-serif;">In 2011, the Ontario government amended the legislation to enhance the EAT compliance regime. Beginning January 1, 2013, the Ontario Minister of Revenue will be afforded significant audit and verification functions including the right to conduct a review of the estate inventory and valuation provided by the executor. If a greater estate value is determined, additional taxes can be assessed. As a result, there will be much more pressure to verify the value of the assets disclosed in the EAT filing.</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Penalties have been added to encourage compliance. It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue. It will also be an offence for any person who makes, or assists in making, a false or misleading statement in connection with the estate trustee’s filing. Offences are punishable by fine, by imprisonment or both. The minimum fine will be $1,000. The maximum fine will be twice the EAT payable.</span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">An estate representative may be exposed to personal liability if the estate assets have been distributed before the Minister of Revenue issues a notice of assessment. There is no ability to obtain a “clearance certificate” to protect the estate representative from personal liability.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">In light of the responsibilities of the estate representative, the new audit measures, and the potential for personal liability, it will be critical for executors to be diligent in obtaining and documenting proper and accurate valuations of the deceased’s property for purposes of calculating the EAT. Where the estate holds shares in privately held businesses, the benefits of obtaining an independent business valuation will far outweigh the costs to the estate and the risk to the executor of not having one prepared.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Contact us at jason@vspltd.ca or www.vspltd.ca for an independent business valuation if you want to minimize your risk and increase your protection as an estate executor.</span></div>
<br />
<br />
<div>
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">[1] source: www.attorneygeneral.jus.gov.on.ca</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-24784988539213189012014-07-03T22:30:00.000-04:002014-07-03T22:30:34.639-04:00Business Valuations to Support Life Insurance Coverage<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">We were recently contacted by the Inspection Department of an independent service provider to the Canadian life and health insurance industry with respect to one of our clients. They were gathering information to assist in the underwriting process and wanted independent evidence supporting the client’s claim as to the value of the business as part of their inspection process. Our client asked us to provide a copy of the independent business valuation we had prepared for purposes of their estate planning and life insurance. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">We have been providing independent business valuations to help business owners determine an appropriate amount of coverage for many years. This was the first time, however, that we were contacted by a representative of the insurance company. It may be that independent business valuations are becoming a more formal part of the underwriting process.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Life insurance is often used for income replacement or to alleviate the burden of estate and probate taxes upon death. However, when business owners use life insurance to fund a buyout or redemption of the shares of a deceased shareholder it is important to ensure that the death benefit will be adequate to:</span></div>
<div style="text-align: justify;">
</div>
<ol>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;">Fund the buyout or redemption of the deceased shareholder’s shares (Buy/Sell Insurance); and</span></li>
<li style="text-align: justify;"><span style="font-family: Trebuchet MS, sans-serif;">Ensure the continued survival of the business upon the loss of what may be a key </span><span style="font-family: 'Trebuchet MS', sans-serif;">person in the business (Key Person Insurance).</span></li>
</ol>
<br />
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">As a result, the life insurance coverage should at least cover the current value of the business and many business owners grossly overestimate or underestimate the value of their business. An independent business valuation provides business owners with third party evidence for ensuring adequate life insurance coverage. This in turn provides the shareholders with peace of mind that their families and their businesses are sufficiently protected. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">An independent business valuation is also helpful to the insurance advisor as it will help:</span></div>
<div style="text-align: justify;">
</div>
<ol>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;">Manage and control the process in creating the application file - insurance companies and their risk advisors are increasingly requiring support for the amount of coverage requested; and</span></li>
<li style="text-align: justify;"><span style="font-family: 'Trebuchet MS', sans-serif;">Solidify trust and cultivate the relationship with the client - providing the insured with third party evidence regarding the value of their business eliminates any pre-conceived notions the client may have with respect to being over sold or under estimated as far as coverage. </span></li>
</ol>
<br />
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">The business valuation should also be updated periodically as the adequacy of the life insurance coverage should be reviewed in light of any growth or other changes to the business over the prior years. Ideally, this process should be agreed to and formalized in the company’s shareholders agreement, which for many business owners, may not exist or may not have been updated for many years.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Life insurance is an integral part of estate and contingency planning for business owners. If you are in the process of obtaining life insurance or reviewing your current coverage, contact us at jason@vspltd.ca or www.vspltd.ca to assist with your business valuation needs.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com1tag:blogger.com,1999:blog-3215966179231428748.post-26002505612007942122014-06-26T23:57:00.000-04:002014-06-26T23:57:41.120-04:00Supporting Valuations in Tax and Estate Planning<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">30% to 40% of business owners are planning to transfer their business internally to another shareholder, management, employees or family member. [1] One option for those planning to transfer the business to the next generation over time is through an estate freeze.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">In an estate freeze the business owner’s common shares are exchanged for preferred shares of equal value to the common shares. New common shares are then issued by the company to the next generation family members. This allows the business owner to “freeze” his/her unrealized gain in the corporation on a tax-deferred basis, with any future growth in value of the company accruing to the children. As a result, the business owner can estimate and plan for the future tax liability, perhaps with life insurance.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Under an estate freeze the fair market value of the common shares must be established. According to the CRA, the fair market value must be determined “by a fair and reasonable method”. [2] If not, CRA will likely challenge the validity of the transaction alleging that a benefit had been received by a shareholder who acquired property from a corporation at less than fair market value.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">In the event of a potential dispute with the CRA, price adjustment clauses (PACs) are sometimes used to retroactively adjust the fair market value to avoid the <i>“conferral of benefit”</i> problem. Unfortunately, a PAC may not help if a fair and reasonable valuation attempt was not initially conducted. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">In Guilder News Co. (1963) Ltd. et. al. v. M.N.R., 73 DTC 5048 (FCA), the Court rejected the PAC as a basis for adjusting the price and eliminating the benefit on the grounds that the parties had not reasonably attempted in good faith to transact at fair market value. Other recent case law involving PACs include St. Michael Trust Corp. v. Canada (2010 FCA 309, affirming Garron, 2009 TCC 450) and Krauss v. Canada (2010 FCA 284, affirming 2009 TCC 597). Potential implications of not having a fair and reasonable valuation to the business owner include additional taxes, interest and penalties.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">An independent valuation prepared by a qualified business valuator can provide a fair and reasonable basis for the fair market value used in an estate freeze, essentially acting as insurance for potential disputes with the CRA. Inadequate fair market value assessments can give rise to unfortunate tax consequences as well as costly and time-consuming litigation, not only with the CRA but also with the advisors. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Other tax and estate planning mechanisms involving the transfer of assets or shares to a related party could include business incorporations, corporate restructuring, share reorganizations or family trusts. In order to take advantage of tax deferrals, these transfers typically must occur at fair market value. You will be well served and protected by involving and retaining an independent business valuator to assist you with the fair market value determinations.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">If you are considering an internal transfer, contact us at jason@vspltd.ca or www.vspltd.ca to assist with your business valuation needs.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">1. Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">2. Source: CRA’s Interpretation Bulletin IT-169.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-64851318578634344012014-06-19T22:25:00.000-04:002014-06-19T22:25:23.163-04:00Business Valuation Helps Facilitate an Internal Transfer of a Business<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">According to recent studies on the business succession market in Canada, between approximately <u>30%</u> and <u>40%</u> of business owners surveyed are expecting to transfer their business internally to other shareholders, management, employees or a family member.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">If you are planning to one day sell your business to an internal party, an independent business valuation can be very beneficial for managing value expectations and ultimately facilitating the transfer of the business at a fair and reasonable price.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">It is extremely important for all parties involved in an internal transfer to agree on the current fair market value of the business, to ensure a smooth ownership transfer. The current fair market value can be used to set the price for the transaction in situations where the purchaser acquires the departing shareholder’s shares or situations involving share redemptions by the company.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">In his best-selling book on protecting family wealth, “Every Family’s Business”, Tom Deans suggests that all business owners should arrange for an updated annual valuation of the business. One of the 12 steps in Tom’s annual checklist for family businesses (referred to as the Wealth Protection Blueprint) states that business owners should:</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><i>“… arrange for an updated valuation of the business and calculate whether there is appropriate insurance in place to ensure that estate taxes will not impair the ability of the company to function in the event of the owner’s death.”</i></span></blockquote>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Tom then discusses the implications of not obtaining a valuation prior to an internal transfer. There can be serious repercussions to the business and to family members if the company is transferred to the next generation for an amount that is less than or greater than the actual fair market value of the business, particularly when the transaction was financed with debt.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">An independent business valuation will help set a reasonable price, one that is fair to all parties, to facilitate the transfer of all or a portion of the equity to other shareholders, management, employees or a family member. Having an independent expert business valuator explain the valuation process, approach and assumptions will help ensure that all parties are satisfied that a fair and reasonable deal was struck.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">The business valuation can also be used for contingency planning to help protect the business and the business owner’s family in the event of an unplanned involuntary transfer due to death, disability, divorce, distress or disagreement.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">If you are considering an internal transfer, contact us at jason@vspltd.ca or www.vspltd.ca to assist with your business valuation needs.</span></div>
<div>
<br /></div>
<div>
<br /></div>
<div>
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">1. Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-11855189110827756202014-05-29T09:47:00.000-04:002014-05-29T09:47:51.713-04:006 Ways a Business Valuation Prepares You for an External Sale<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">According to studies on business succession in Canada, more than one third of those surveyed are expecting to sell their business externally to a third party. [1]</span></div>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><i>"We should remember that good fortune often happens when opportunity meets with preparation."</i></span></blockquote>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">― Thomas A. Edison</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Business owners looking to sell their business to an external third party should take note. There is tremendous opportunity to sell for a significant premium because many business owners are not properly preparing. The preparation for this begins with a business valuation and solid value enhancement plan. The good fortune comes in the form of a sale of the business for the maximum possible price.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"> </span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">For many business owners the sale of their business is a once in a lifetime event and, without proper education, many will either grossly overestimate or underestimate the value of their business. If you plan to sell your business to an external party one day, obtaining an independent business valuation is an investment that will pay for itself many times over. Here are 6 reasons why:</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">1.<span class="Apple-tab-span" style="white-space: pre;"> </span>An independent valuation helps to manage the business owner’s pricing expectations which increases the likelihood of getting a deal done;</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">2.<span class="Apple-tab-span" style="white-space: pre;"> </span>A professional valuation helps to justify the asking price and provides support for negotiating the price with a potential purchaser;</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">3.<span class="Apple-tab-span" style="white-space: pre;"> </span>An independent valuation prepares the business owner for any unsolicited offers received from competitors or other industry participants;</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">4.<span class="Apple-tab-span" style="white-space: pre;"> </span>The valuation process can help identify potential purchasers or purchaser categories;</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">5.<span class="Apple-tab-span" style="white-space: pre;"> </span>The valuation process educates the business owner regarding “stand-alone value” and “synergistic value” and the notion that strategic purchasers are often willing to pay more than “stand-alone value”; and</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">6.<span class="Apple-tab-span" style="white-space: pre;"> </span>A valuation ultimately helps the business owner maximize the sale price, ensuring no money is left on the table.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">Many business owners looking to sell their businesses will not take advantage of <u>opportunities </u>in the current marketplace through proper planning, including a professional business valuation. On the other hand, those that are <u>prepared </u>with a professional valuation and keen sense of market timing will vastly increase their odds of <u>good fortune</u>.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">If you are considering an external sale, contact us at jason@vspltd.ca or www.vspltd.ca to start your preparations with an independent business valuation.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">1. Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).</span></div>
<div style="text-align: justify;">
<br /></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com1tag:blogger.com,1999:blog-3215966179231428748.post-46742272792234212262014-05-21T21:22:00.000-04:002014-05-21T21:22:57.909-04:00Business Valuation - Critical for Pre-Sale Planning<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">An independent professional business valuation is a critical element of pre-sale planning for business owners. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Various studies indicate that between 60% and 75% of business owners will exit their businesses within the coming decade. [1] Over $10 trillion in private wealth will change hands in North America over this time frame, the largest transfer of private wealth in history. [2]</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">There certainly is capital out there currently sidelined and looking for good investment opportunities. If you have an attractive and salable business, and you are ready, now may be the time to put it on the market given that the increasing supply of businesses for sale over the coming decade will put downward pressure on sale prices. Under these conditions buyers will only pay top dollar for the most attractive businesses and those that come to market unprepared will risk selling for a significant discount or face liquidation altogether.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Effective pre-sale planning must begin at least 3 years prior to sale and should begin with a business valuation. A current valuation provides: </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">1.<span class="Apple-tab-span" style="white-space: pre;"> </span>An indication of what the business owner could reasonably expect to fetch on the open market (i.e. managing value expectations will increase your odds of getting a deal done); and</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">2.<span class="Apple-tab-span" style="white-space: pre;"> </span>A benchmark for enhancing the value of the business prior to an actual sale. </span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">The business valuation process involves a careful assessment of the company’s risk profile and the key value drivers for the business. A valuation conducted by a professional valuator will identify areas of weakness to focus on to increase the attractiveness of the business to a potential purchaser. Beginning early enough allows time to implement the key value enhancement initiatives required to maximize the price that is ultimately received in a sale. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">All business owners will eventually exit their business. The importance of pre-sale planning must not be overlooked. In a Newport Partners survey of more than 100 Canadian business sellers, 62% recommended methodically pre-planning the sale of a business two to three years in advance. Less than 25%, however, actually did so themselves. Success can be achieved by learning from the mistakes of others. </span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Pre-sale planning is especially vital in light of existing demographics and the expected increase in the supply of businesses that will be put up for sale over the coming decade. The planning begins with a business valuation so there is a frame of reference for measuring the effectiveness of the pre-sale planning activities. Without one business owners may never realize just how much money was left on the table.</span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: 'Trebuchet MS', sans-serif;">Contact us at jason@vspltd.ca or www.vspltd.ca to start your pre-sale planning process with an independent business valuation.</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">1. As per the Canadian Federation of Independent Business (CFIB) and the CICA/RBC Business Monitor (Q1 2010).</span></div>
<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif; font-size: x-small;">2. Source: The $10 Trillion Opportunity, Richard Jackim & Perry Phillips, 2007.</span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-46028827948648744422014-05-05T13:45:00.000-04:002014-05-05T13:45:46.025-04:008 Ways to Tell if You Are Building a Business or Just Have a Job<div style="text-align: justify;">
<span style="font-family: Trebuchet MS, sans-serif;">The ultimate test to determine if you own a valuable “business” or just have a “job” can be found in a simple question: would someone want to buy your company? </span></div>
<div style="text-align: justify;">
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<span style="font-family: 'Trebuchet MS', sans-serif;">Would your customers continue to do business with the company (and its new owners) after you are gone? In other words, will the revenues and discretionary cash flows generated by the business continue after your departure? This is a major issue for many smaller personal services businesses that have few, if any, employees and are very dependent on the owner(s) for generating business and performing specialized services. </span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">If you are planning to one day sell your business you should address this issue now to understand what, if anything, must be done to turn your “job” into a salable “business”. Whether you want to sell next year or a decade from now, you must build an asset someone would buy – otherwise, you have a job, not a business. </span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Here are eight ways to ensure you are building a salable business and not just doing a job:</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">1.<span class="Apple-tab-span" style="white-space: pre;"> </span>A job requires that you show up at work to make money, whereas a business generates revenue whether you are there or not.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">2.<span class="Apple-tab-span" style="white-space: pre;"> </span>If your company is so reliant on a single customer that they can dictate how you deliver your product or service, your company is more like a job than a valuable business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">3.<span class="Apple-tab-span" style="white-space: pre;"> </span>A job is a place where your personal reputation impacts your results, whereas a business is a place where the brand is more important than the personality of the founder(s).</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">4.<span class="Apple-tab-span" style="white-space: pre;"> </span>A job requires you to use your personal experience and expertise to get a result, whereas a business is a place where a process – not a person – consistently produces a desirable result.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">5.<span class="Apple-tab-span" style="white-space: pre;"> </span>In a job, you get fired for taking too much vacation, whereas if you own a business, the more vacation you can take without impacting your company’s performance, the more valuable your business will be.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">6.<span class="Apple-tab-span" style="white-space: pre;"> </span>In a job, the harder you work, the more money you earn. In a business, the smarter you work, the more money you earn.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">7.<span class="Apple-tab-span" style="white-space: pre;"> </span>In a job, you solve the problems. If you own a business, your employees solve the problems.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">8.<span class="Apple-tab-span" style="white-space: pre;"> </span>If the majority of your customers know your personal phone number, it’s likely you have a job, not a business.</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">If you are unsure as to the extent to which you own a valuable “business” or just have a “job”, you should get your Sellability Score. Whether you are looking to sell now or in a decade, the Sellability Score assessment allows you to see your business as a potential buyer would see it and to identify areas to focus on continue building a salable business. </span></div>
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<span style="font-family: 'Trebuchet MS', sans-serif;">Complete the Sellability Score questionnaire at www.sellabilityscore.com/vsp/jason-kwiatkowski and we will send you a summary report showing just how your business stacks up on the “job” versus “business” issue.</span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-72596215058845705882014-04-21T16:33:00.000-04:002014-04-21T16:33:05.283-04:00How to Minimize Costs in a Matrimonial Separation<span lang="EN"><div dir="LTR" style="text-align: justify;">
<span style="font-family: "Trebuchet MS", sans-serif;">A sobering statistic for many is that over 40% of marriages will end in divorce before the 50th year of marriage. [1] This does not exclude business owners and a matrimonial separation can result in significant professional fees for business owners, especially when the value of the business is a key area of dispute. An independent business valuation can help to minimize legal and expert fees for business owners going through a matrimonial separation.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The division of property is a major issue in a matrimonial separation. According to the Ontario Ministry of the Attorney General [2]:</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">"When a marriage ends, … the value of any property that was acquired by a spouse during the marriage and still exists at separation must be divided equally between the spouses. Also, any increase in the value of property owned by a spouse at the date of marriage must be shared. The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property."</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Upon separation a net family property (NFP) statement is prepared setting out the value of the assets and liabilities of each spouse as at the date of marriage and the separation date. Privately held business interests (i.e. shares, stock options, restricted stock, etc.) constitute property, the value of which must be included in the NFP statement. The assistance of a Chartered Business Valuator will likely be needed where there are business interests and the parties cannot mutually agree on the value of the those interests as at the marriage date or the separation date. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Depending on the separation process (i.e. collaborative, mediation, litigation, etc.), the parties may agree to jointly retain one independent business valuator to value the business interests. One party, however, may opt to individually retain an independent business valuator. The other party will often then retain a separate independent business valuator to review, critique and respond to the other expert’s report. This can be a costly process. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Where spouses disagree over the value of the business significant legal and expert business valuation fees can be incurred towards various activities relating to the value of the business interests (e.g. document productions, discoveries, legal motions, expert reports, negotiations, critique reports, trial, etc.). This can become a very costly, time consuming, and emotionally draining process. If the business valuation issue becomes very contentious, professional fees can quickly escalate to well over $100,000. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Obtaining an independent business valuation for a fraction of this cost can help avoid a disagreement over value in the event of a marital breakdown, which is well worth it if it saves hundreds of thousands of dollars in professional fees. By not having an independent business valuation (and discussing this issue with your spouse) you increase the chances of there being a dispute over the value of the business in the event of a matrimonial separation.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Contact us at </span><a href="mailto:jason@vspltd.ca"><span lang="EN"><span style="font-family: "Trebuchet MS", sans-serif;">jason@vspltd.ca</span></span></a><span lang="EN"><span style="font-family: "Trebuchet MS", sans-serif;"> or </span></span><a href="http://www.vspltd.ca/"><span lang="EN"><span style="font-family: "Trebuchet MS", sans-serif;">www.vspltd.ca</span></span></a><span lang="EN"><span style="font-family: "Trebuchet MS", sans-serif;"> to find out more about the business valuation process and the types of valuation reports that CBVs provide.</span></span></div>
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<span lang="EN"><span style="font-family: Trebuchet MS;"><span style="font-size: x-small;">1. Source: </span><a href="http://www.statcan.gc.ca/"><span style="font-size: x-small;">www.statcan.gc.ca</span></a><span style="font-size: x-small;">, CANSIM Table 101-6511.</span></span></span></div>
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<span lang="EN"><span style="font-family: Trebuchet MS;"><span style="font-size: x-small;">2. Source: </span><a href="http://www.attorneygeneral.jus.gov.on.ca/"><span style="font-size: x-small;">www.attorneygeneral.jus.gov.on.ca</span></a><span style="font-size: x-small;">.</span> </span></span></div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-29616509861944442362014-04-13T21:15:00.000-04:002014-04-13T21:15:12.170-04:00Avoiding Costly Shareholder Disputes<span lang="EN"><div dir="LTR" style="text-align: justify;">
<span style="font-family: "Trebuchet MS", sans-serif;">Business ownership can be complicated, particularly when there are multiple shareholders. The odds of disagreement and conflict among shareholders over various issues can be very high. When shareholder relationships break down there must be a mechanism in place for dealing with the dispute or for enabling one or more of the shareholders to exit the business in a pre-determined manner. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">A shareholder buyout can quickly turn into a costly dispute if the value of the business has never been discussed and agreed to among the shareholders. Different shareholders likely have different expectations regarding the value of the business. Having an effective Shareholder Agreement and obtaining an independent business valuation can help <u>avoid</u> a very costly, time consuming and emotionally draining shareholder dispute. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">I have been retained in many shareholder disputes to provide an independent expert business valuation for purposes of determining a price at which the departing shareholder’s shares should be acquired by the remaining shareholder(s) or redeemed by the company.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In my experience, these disputes can be devastating to the business as well as the individuals involved. The shareholders become distracted and ultimately exhausted from preparing for and attending discoveries, meetings with lawyers and experts, settlement negotiations and arbitration or court proceedings. Relationships are destroyed and ultimately the business suffers because the shareholders are no longer devoting sufficient time and attention to managing the company’s operations.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The importance of a Shareholder Agreement to privately held business owners cannot be over emphasized. An effective Shareholder Agreement should address the following areas: i) compensation; ii) decision making; iii) entrance; iv) exit; and v) return on investment. Privately held company shares are illiquid assets and the Shareholder Agreement should provide the shareholders with the means to liquidate an otherwise illiquid asset under certain triggering events. For example, a buy-sell provision (or "shotgun" clause) allows for one shareholder to offer to buy the shares of another shareholder subject to the right of the other shareholder either: i) accepting that offer; or ii) buying the shares of the offering shareholder at the same price offered by that shareholder.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">With respect to the valuation of the business and the individual shareholdings, the Shareholders Agreement should provide a definition of value (e.g. fair market value or fair value) and set out the process and timing for obtaining an independent valuation. Many Shareholder Agreements stipulate that an annual or biennial valuation of the business should be prepared by an independent Chartered Business Valuator (CBV). This independent valuation forms the basis for new shareholders to buy-in and for existing shareholders to exit or measure their return on investment. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Committing to a formal business valuation allows the shareholders to discuss and agree to the value of the business <u>before</u> any potential disagreements arise. In the event of a shareholder buyout, the valuation issue will have already been addressed. The return on investment to the shareholders will be substantial if it means avoiding a costly, time-consuming, emotionally draining and perhaps devastating shareholder dispute down the road.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Contact us at </span><a href="mailto:jason@vspltd.ca"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">jason@vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> or </span></span><a href="http://www.vspltd.ca/"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">www.vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> to find out more about the valuation process and the types of valuation reports that CBVs provide.</span></span></div>
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<span style="font-family: Trebuchet MS; font-size: x-small;"><span style="font-family: Trebuchet MS; font-size: x-small;"><span lang="EN"></span></span></span>Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com1tag:blogger.com,1999:blog-3215966179231428748.post-59778653223725561382014-04-05T16:23:00.001-04:002014-04-05T16:23:59.776-04:00Business Valuation – Critical to Enhance Value and Manage Wealth<span lang="EN"><div dir="LTR" style="text-align: justify;">
<span style="font-family: "Trebuchet MS", sans-serif;">As a business owner, the value of your business likely represents a significant portion of your wealth. According to a publication by Mercer Capital:</span></div>
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<em><span style="font-family: "Trebuchet MS", sans-serif;">"About 75% of all private equity is owned by households for whom it constitutes at least half of their total net worth. Households with entrepreneurial equity invest on average more than 70% of their private holdings in a single private company in which they have an active management interest." [1]</span></em></blockquote>
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<span style="font-family: "Trebuchet MS", sans-serif;">Enhancing and managing this privately held business wealth is critical to business owners and this process begins with an independent business valuation.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Value Enhancement</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The process of enhancing the value of your business begins with a business valuation which provides a benchmark from which to measure value increases over time. The valuation process will also identify key value drivers to focus on to enhance the value of the business. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Resulting value increases will provide a significant return on the investment in a business valuation and value enhancement initiative. We have seen clients double their business value within a two year period </span><a href="http://jasonkwiatkowski.blogspot.ca/2013/12/how-to-double-value-of-your-business-in.html"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">http://jasonkwiatkowski.blogspot.ca/2013/12/how-to-double-value-of-your-business-in.html</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">).</span></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Potential purchasers will be very impressed if you have documented how you increased the value of your business over time and identified opportunities for further growth and value enhancement. Your chances of attracting numerous suitors and securing a deal for top dollar will be greatly increased.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Wealth Management</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In order to effectively manage your wealth you need to know the value of your assets, including your privately held business. Annual fees are paid to wealth managers to manage your liquid investments (e.g. publicly traded securities). Monthly statements are provided setting out the value of these investments to assist with decision making.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Privately held business owners often spend significant time managing the business but little time managing the wealth associated with their business. An effective wealth management strategy allocates a percentage of the value of the business to managing this privately held wealth.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The One Percent Solution suggests recommends for business owners to invest 1% to 2% of the value of the business towards a "wealth management budget" which includes, among other things, an annual business valuation and monitoring critical success factors and key value drivers.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">All business owners will one day exit their business. An independent business valuation can help you identify what percentage of your overall wealth is tied up in the business and identify key areas to focus on to enhance the value of your business.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Contact us at </span><a href="mailto:jason@vspltd.ca"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">jason@vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> or </span></span><a href="http://www.vspltd.ca/"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">www.vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> to find out more about the valuation process and how it can help enhance the value of your business and manage your wealth.</span></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif; font-size: x-small;">1. Source: The One Percent Solution, Z. Christopher Mercer, 2007.</span></span></span></span></span>Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com4tag:blogger.com,1999:blog-3215966179231428748.post-50486532995065506672014-03-28T09:43:00.001-04:002014-03-28T09:43:37.185-04:00Business Valuation – Critical for Managing Value Expectations<span lang="EN-CA"><div dir="LTR" style="text-align: justify;">
<span style="font-family: "Trebuchet MS", sans-serif;">Are you trying to build a business to one day sell for top dollar? If so, it is critical for you to manage your value expectations and to be aware of how your business will be perceived and valued by potential purchasers.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Many business owners have unreasonable expectations regarding the value of their business. According to RBC Business Succession Planning: Your Essential Roadmap, <i>"It is important to get a professional business valuation, since owners may grossly overestimate or underestimate the value of their business."</i></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Some business owners overestimate the value of their business and others actually underestimate the value of their business. I have seen both situations before and there are serious implications to erring on one side or the other. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Business owners that overestimate the value of their business may do so because they place too much emphasis on sweat equity or they ascribe value to the personal goodwill associated with the business. Sweat equity refers to the effort and time put into the business and personal goodwill refers to the value associated with the personal skills and abilities of the business owner which are not commercially transferable. A potential purchaser will not be willing to pay for the business owner’s value expectations if the company financials do not support them.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">A potential purchaser is interested in future cash flows. When the target’s cash flows (current or future) do not support the business owner’s value expectations, this creates a (potentially significant) gap between what a potential purchaser is willing to pay and what the business owner expects to receive. The larger this value gap the greater the risk of not getting a deal done.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Implications of Underestimating Value</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Business owners that underestimate the value of their business may do so for many reasons. They may not understand how a potential purchaser values a target company. They may not appreciate the value associated with various intangible assets they have created (e.g. customer relationships/contracts, intellectual property, proprietary technology, goodwill, etc.). They may have based their value expectations on outdated or inappropriate industry rules of thumb.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">A potential purchaser may see value that you were not aware existed, especially if you are dealing with a strategic purchaser. [1] The price paid in an actual transaction is the result of a negotiation and a potential purchaser will rarely put forth their best offer initially. If you are not armed with the ability to understand and justify the value of your business to a potential purchaser you run the risk of leaving significant money on the table. You may be inclined to accept an initial unsolicited offer without attempting to negotiate a higher price based upon valuation principles and valid assumptions.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The consequences of overestimating or underestimating the value of your business can be severe. An independent business valuation conducted 3 to 5 years prior to sale allows you to manage your value expectations and enter meaningful negotiations with a potential purchaser, provide reasonable justification for your value, increase your chances of getting a deal done and not leave money on the table in the process.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Contact us at </span><a href="mailto:jason@vspltd.ca"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-CA">jason@vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-CA"> or </span></span><a href="http://www.vspltd.ca/"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-CA">www.vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-CA"> if you want to manage your value expectations and minimize your risks with an independent business valuation.</span></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif; font-size: x-small;"><span lang="EN-CA">1. A strategic purchaser is one who believes it can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with its own.</span></span></div>
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<span style="font-family: Trebuchet MS; font-size: x-small;"><span style="font-family: Trebuchet MS; font-size: x-small;"><span lang="EN-CA"></span></span></span>Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-71601650876735359152014-03-20T16:25:00.000-04:002014-03-20T16:25:23.526-04:005 Ways to Position Your Company to a Strategic Purchaser<span lang="EN-GB"><div dir="LTR" style="text-align: justify;">
<span style="font-family: "Trebuchet MS", sans-serif;">Facebook’s recent acquisition of WhatsApp for $19 billion represented the largest-ever acquisition of an Internet messaging service company in history.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">WhatsApp allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or live in emerging markets, hundreds of dollars a year. As a result, WhatsApp is adding about one million new users per day.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">At the time of the acquisition in February 2014, WhatsApp had some 450 million users and, after the first year, charges users a subscription of $1 per year. Even if all 450 million WhatsApp users were already paying, that is still less than half a billion in revenue. Why would Facebook acquire WhatsApp for a number that is somewhere north of 40 times revenue? </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">It is possible that Facebook sees the opportunity to sell more Facebook ads because of the information they gather from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around $500 billion. Presumably Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry norms, but a strategic purchaser can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth in today’s dollars, a strategic buyer is calculating the economic benefit of combining your business with theirs.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">There can be many "strategic" reasons why a larger company might want to buy yours. Here are 5 to consider:</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">1. To control their supply chain (i.e. you are a key supplier)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In 2011, Starbucks announced it had acquired Evolution Fresh, one of their providers of juice drinks, for $30 million. This allowed Starbucks to be less dependent on one of its suppliers. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">2. To enhance sales (i.e. you provide an opportunity for the purchaser to increase its sales) </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In 2011, AOL announced the acquisition of The Huffington Post for $315 million, even though HuffPo had just turned its first modest profit on paper. AOL wanted to give its advertising sales people more inventory to sell and HuffPo had 26 million unique visitors a month.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">3. To make their products look sexier (i.e. your product enhances the purchaser’s products)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In 2011, Microsoft bought Skype for $8.5 billion even though Skype was losing money. It is possible that Microsoft expected to sell more Windows, Office and Xbox products by integrating Skype into everything they already sell.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">4. To enter a new geographic market (i.e. you offer an expansion port for the purchaser)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">In 2012, Herman Miller paid $50 million to acquire POSH Office Systems (a Hong Kong based designer, manufacture and distributor of office furniture) in order to get a foothold into the world’s fastest growing market for office furniture.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">5. To get a hold of your employees (i.e. your employees are valuable to the purchaser)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Facebook reportedly acquired Internet start-up Hot Potato for $10 million, largely to get hold of the talented developers working at the company.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Most acquisitions are done for rational reasons where an acquirer agrees to pay today for the rights to your future stream of cash. You may, however, be able to get a significant premium for your company if you can figure out how much it is worth in a specific purchaser’s hands.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Curious to see what your business is worth and how you might improve its value to both strategic and financial acquirers? Contact us at </span><a href="mailto:jason@vspltd.ca"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-GB">jason@vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-GB"> or </span></span><a href="http://www.vspltd.ca/"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-GB">www.vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-GB">. You can also complete the Sellability Score questionnaire and we’ll send you a custom report complete with your score on the eight key drivers of Sellability. Take the test now: </span></span><a href="http://www.sellabilityscore.com/vsp/jason-kwiatkowski"><u><span style="color: blue;"><span style="color: blue;"><span style="color: blue; font-family: "Trebuchet MS", sans-serif;"><span lang="EN-CA">http://www.sellabilityscore.com/vsp/jason-Kwiatkowski</span></span></span></span></u></a>.</div>
Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com0tag:blogger.com,1999:blog-3215966179231428748.post-47523220488358119742014-03-03T22:18:00.000-05:002014-03-04T11:02:17.799-05:0010 Reasons to Invest in a Business Valuation<span lang="EN-CA"></span><div dir="LTR" style="text-align: justify;">
<span lang="EN-CA"><span style="font-family: "Trebuchet MS", sans-serif;">Many business owners do not know the current value of their business, which can represent a significant portion of their overall wealth. Worse yet, many business owners will grossly overestimate or underestimate the value of their business.</span></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">A Chartered Business Valuator (CBV) or Accredited Senior Appraiser (ASA) can provide you with this extremely valuable information. Some business owners are reluctant to undertake this exercise because of the cost. They do not appreciate that the benefits of obtaining an independent valuation can far outweigh the cost.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Obtaining an independent, professional business valuation for planning purposes does not have to be an expensive endeavor. The cost will depend on the size and complexity of the business and the type of report that is required. The cost to have a CBV prepare a Calculation Valuation Report, however, can be quite reasonable and this type of valuation report is generally sufficient for planning purposes.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Obtaining an independent business valuation and understanding the value of your business is one of the cornerstones of an effective exit planning process. There are many reasons to invest in a professional business valuation, including:</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Manage value expectations</b> – an independent valuation can increase your chances of getting a deal done since many business owners will overestimate or underestimate the value of their business </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Wealth management / enhancement</b> – a valuation helps to identify key value drivers and provides a benchmark for measuring value enhancement</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Shareholder buy-out or dispute</b> – provide a value for shareholder buy-out or, more importantly, help avoid potential future legal disputes over value (i.e. full disclosure to all shareholders)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Matrimonial separation or dispute</b> - provides support for value of the business to be included in net family property (NFP) statement or, more importantly, help avoid potential disputes over value upon separation</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Pre-sale planning</b> - buyers will only pay top dollar for the most attractive businesses. A valuation can help document the increase in value over time and help the business become more liquid</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>External sale </b>- use as a basis for negotiations with potential purchasers (e.g. determine asking price, assess unsolicited offer, etc.)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Tax and estate planning</b> - provides support for the value being transferred and acts as insurance for potential disputes with CRA (e.g. estate freezes, reorganizations, related party transactions, etc.)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Life insurance coverage</b> - provides guidance for amount of life insurance coverage to obtain (e.g. key person, fund buy-sell agreement, fund taxes on death, etc.)</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Trustee / executor protection</b> - protection against possible estate administration tax (EAT) reassessments</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">The benefits of having a professional valuation far outweigh the costs. In our experience, a Calculation Valuation Report is suitable for planning purposes and can generally be prepared for less than $10,000. The valuation process can help uncover key value drivers to potentially double the value of your business within a few years. Two of our recent clients at VSP were able to double the value of their business in a two year period.</span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Obtaining a professional valuation can also help minimize the legal and other expert fees if you are ever faced with a shareholder dispute or matrimonial separation. The value of the business is often a very contentious issue in these matters and legal and expert fees (i.e. for a business valuator) well in excess of $10,000 are routinely incurred as a result of this issue alone. </span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;">Follow me over the coming weeks as I explore the above noted reasons in more detail. <span lang="EN"> Contact us at </span></span><a href="mailto:jason@vspltd.ca"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">jason@vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> or </span></span><a href="http://www.vspltd.ca/"><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN">www.vspltd.ca</span></span></a><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN"> if you would like to maximize the value of your business and minimize potential legal and expert fees in the event of a separation (shareholder or matrimonial).</span></span></div>
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Jason Kwiatkowskihttp://www.blogger.com/profile/06057429378778372538noreply@blogger.com2