How to Add Value to Your Business
What’s it like to be in the company of 30 University of Maryland alumni less than a week after the Terps were eliminated from the NCAA basketball tournament? It was a great time!
The University of Maryland’s Montgomery County Alumni Network held a Terrapin Professional Network Breakfast on March 29. Thirty graduates from as far back as the Class of 1968 gathered to schmooze, talk a little about themselves, and listen to an engaging discussion about adding value to your business. Mike Ginsberg, President and CEO of Kaulkin Ginsberg, and Bob Greenfest, Principal at Santos, Postal & Company, CPAs, and both co-founders of Topline Valuation Group, had the pleasure of leading the presentation.
Ginsberg and Greenfest discussed that fair value is nothing more than what a knowledgeable, willing, and unpressured buyer would pay a knowledgeable, willing, and unpressured seller for his or her business. Quantitative methods of performing a valuation include the market-comparable approach, asset-value approach, and the much-used (at least for closely-held businesses) income approach.
They stressed that business owners may have 50% to 80% of their net worth tied up in the value of their business. Therefore, doesn’t it make sense to treat the business like an investment and seek to grow the cash flow? A business valued at $1,000,000 will be worth almost $2.6 million in 10 years at a growth rate of 10% per year. Seems like a worthwhile investment in time and energy.
Statistically, more than 78% of majority shareholders of closely-held businesses are more than 50 years old. 57.5% are first-generational owners. 76% of the owners plan a transition in 10 years, and 50% would like to transition within three years.
That said, 83% DO NOT have a documented succession plan. It takes between two and three years to stage a business for sale. How can this possibly be accomplished without a well-documented plan?
A business owner must first know value, then grow value, then finally realize value. Although this sounds easy, it’s not. While there are numerous value drivers and detractors that can positively and negatively affect a business’ value, it’s beneficial to seek professional guidance. Just as one would hire a financial advisor to assist and advise in growing investable assets, a business owner should seek the guidance of someone who can maximize business value and assist in monetizing that value as part of a well-thought-out succession plan. If only it were as simple as when Andrew Carnegie said, “Watch the costs, and the profits will take care of themselves.”
Anyone interested in obtaining a copy of the handouts from the presentation should email Questions@ToplineValuationGroup.com.