How to Enhance the Perceived Value of Your Business Reflecting on the more than a dozen ar- ticles in the “Tools for Managing Your Business” series, there have been numer- ous suggestions and techniques about how to make your business successful. Although the term “successful” is oſten narrowly interpreted to mean profitable, that’s a one-dimensional description. A business should be profitable and have positive cash flow, but a solid infrastruc- ture can offer the owner more time for quality-of-life endeavors and make the business appealing to a prospective buyer. Sure, sometimes businesses have been purchased despite their poor financial performance — or even because of it. Very profitable companies with strong cash positions sometimes purchase unsuccess- ful firms primarily for their NOLs (net operating losses). The underperforming company’s NOL can be carried forward to reduce or offset the acquiring company’s current and future taxable income liabil- ity. Although this subject is far beyond the scope of our article, this concept is ger- mane to exit strategies and understanding a particular type of buyer’s motivation. Competitive, strategic and tax con- siderations can and do form compelling rationales for acquisition and sometimes merger. But, generally speaking, it can be risky to overly depend on such fortuitous opportunities as your exclusive exit strat- egy. Remember, you also want to get the best possible price, terms and timing, if/ when you sell your business. Ideally, posi- tion your business so it appeals to a broad range of potential buyers. Think about a particular business that might be an attractive acquisition for your own business. Assuming that you had an www.savta.org “One common exit strategy is to use the profits from your business to fund your personal retirement investments.” opportunity to buy it, what would make it more appealing (other than price)? Ideally, it would have a steady cadre of established and successful clients/accounts that are growing and punctually pay their bills, with none representing more than 10 to 15 percent of your total sales volume. But as a prospective buyer (even more so, as a passive investor), you’d also pre- fer an established entity with solid orga- nizational structure, experienced and professional staff, appropriate tools and equipment and in-place procedures, pro- cesses and best practices. In other words, a business that is reasonably autonomous and did not require extensive reconfigu- ration, investment, handholding and mi- cromanagement. With all this in mind, let’s do some reverse engineering. Make your own list of desirable acquisi- tion attributes and then see whether your existing business would pass such a sniff test. Now do it again, but this time, re- move yourself from the equation. With- out you, does your business resemble the scene from The Wizard of Oz when the curtain was pulled back to reveal the true identity of the wizard? Can your business withstand the kind of scrutiny anticipated from a potential buyer’s due diligence? If we cut through the BS, one good in- dicator is if you’re able to take an occa- sional day off without manning the crisis hotline every minute. Be honest: Can you really take one or a few days off and have the business run without you? No, it does not have to run as well without you. But does your absence cause a disaster? If so, what does this suggest about the value of your business if/when you aren’t present? No, cloning is not yet a solution, and in your case, society at large might object to a second you! Do your employees welcome and even pray for you to take a day off? What’s My Business Worth? There are many books about how to esti- mate your business’s value. But, ultimately, any business or asset is only worth what a buyer is prepared to pay for it when not under duress to conduct the transaction. This article does not attempt to suggest formulas or other methods of determining the value of your business. But let’s take a look at real-world factors that influence the relative value. Yes, you can consider the hard assets that the business owns (inventory, tools, equipment, vehicles, buildings, etc.), and it’s easier to estimate the value of this part. Beyond that, there are many variables that tend to influence the perceived value. Profitability and cash flow are among the most important elements of value. You can chat about buyers and value with a busi- ness broker in your area, but remember: They are motivated to complete a sale and thus collect their commission, which is typically 10% of selling price. Far too oſten, business owners convince themselves (even without the aid of marijuana, opioids or liquor), that their March/April 2022 | SAFE & VAULT TECHNOLOGY 11
