Analyzing Profitable Entrance, Growth & Exit Routes
When should you start your own business? Do you have a plan? When should you get off the ride? Does your business plan have an exist strategy? All good business plans should have one. What should that strategy be? When should it be employed? When that time comes, or if you are looking to sell or merge your business for another reason, or want to buy some other business, there are a few things you should know.
BUY/SELL BUSINESSES - MERGERS & ACQUISITIONS
Millions of owners of small and growing companies across the country can't be wrong! If you are that unique individual who is motivated by personal accomplishment and stimulated by challenge, whose enthusiasm knows no bounds, who finds it difficult working for someone else, then you probably are (or want to be) a business owner - an entrepreneur. In California, over 80% of the businesses have fewer than 25 people.
Did you know that the same desires that motivate buyers - independence, wealth, and flexibility to pursue alternative opportunities - also motivate sellers? Interesting, isn't it! While this may seem strange at first, it becomes easier to understand with the realization that an investment in a closely held business is illiquid (can't easily be sold) in nature. This fact may make the pursuit of alternative personal or financial goals difficult because of the time and financial demands that a business places on its owner. It appears to be an oxymoron, doesn't it? However, Mr. Cederdahl says you can still have all of this with balance to your life as well. You just have to know how to do it.
First, you must look at your life before you make the decision to start a business, buy, merge, sell, or make a strategic acquisition. Next, look at the technical aspects:
· Look at the trend of an industry that is compatible with your personal objectives or expertise. · Identify specific companies for potential acquisition or sale of your company within that industry. · Develop financial & operational screening standards for evaluating companies. · Evaluate these companies using the established criteria.
This is merely the technical side of the equation. The next is to envision how this change will fit within your life. Does this enhance your life - does it increase balance? Will you have more time to do the things you want to do? Bob can help you with a bootstrapping sale, starting a new business, financing, equity considerations and other decisions to consider on both the personal and business side.
CREDIBLE BUSINESS VALUATIONS
Why do you need to value a business? Gifting, estate planning, divorce, sale or acquisitions are a few reasons why you may want to value a business.
After deciding to buy, sell or merge, the next question is, "How much is it worth?" Valuing a small business is one of the more difficult aspects of any deal. Recognize that buyer and seller are involved in making an investment decision. This decision must consider alternative uses of funds, market & industry trends, and several other seemingly disjointed factors.
There are many methods used in valuing a business. Balance Sheet alternatives, projected earnings approach, capitalization of earnings, discounted cash flow or future earnings, comparative, rules of thumb, and trend analysis are but a few. How does one value a business with no earnings but a potentially bright future? How can one justify a P/E ratio of 300 - or even an infinite P/E ratio? That's a good question.
The process demands that the consultant be educated and have practical skills in many fields such as accounting, financial analysis, economics, taxation and human communications. Why communications? When fact-finding, the valuator must have the human skills to uncover as many of the facts as possible (Bob calls it roto-rooting). In addition, if the valuator is to be involved during negotiations, he must have additional communication skills.
The valuation of a closely held business presents additional challenge for those called upon to perform this work. The primary difficulty in establishing an estimated value for a small closely held business is that the business is usually owned by relatively few individuals and that an established market for trading the ownership interests may not exist.
Historically, a closely held business' value or selling price was based on negotiations strictly between buyer and seller. Over the years, practitioners coming into the field (due to IRS demands) have helped smooth the process. Yet, the profession of performing valuations of a closely held business continues to remain more of an art than a science. This has been precipitated by the fact that valuations are very complex and frequently involve attorneys or consultants who take extreme advocate positions. The relative effects of quantitative aspects in their valuations have thus been reduced over the years. Should the valuator then be involved in negotiations or act as advisor to his client during the negotiation process, many deals will fail due to lack of communication skills. So, what then? Let Mr. Cederdahl show you why win-win situations are critical for success in this arena.
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Cederdahl Consulting and Coaching
4109 Nabal Drive La Mesa CA. 91941-7039
Phone 619-670-1122 Fax 619-670-9363