Business Valuation Matters

Jim Lorenzen, CFP®, AIF®

Business valuation matters!   And, not just when you plan to sell.   Few business owners realize that valuation ‘what-if’s’ can help determine the advisability of major purchases and investments, not to mention the implementation of pre-funded buy-sell arrangements.   Yet, of the more than 200 million businesses in operation globally, fewer than 2 percent value themselves annually.   Over the next 10 years, approximately 10 million businesses will change ownership, according to BizEquity, but 75 percent of small business owners don’t know what their business is worth.

Business owners often hold mistaken assumptions about their business’s value, he says; technology companies often overvalue themselves while retailers, manufacturers and professional firms don’t value themselves highly enough.

The lack of knowledge puts small and midsize business owners at particular risk because they are unaware of how to create the right capital structure for their business, what amount of insurance to buy or how to plan for a business transition into retirement.   According to BizEquity, 50 percent of small businesses are uninsured and more than three-quarters of business owners plan to fund 100 percent of their retirement through the sale of their business.

How do you establish business value?  You might find our report helpful.  You can learn more here.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

What Business Owners Need Most!

Jim Lorenzen, CFP®, AIF®

 

Business owners spend long hours for many years trying to build their dream.  For many, their business represents 70%, 80%, even 90% of their net worth!   It’s not unusual to have everything tied-up in their business ownership.

In essence, they have everything riding on one stock – something they’d never do with any other stock, even if the company was run by the greatest CEO on earth.

Their business is the source of their income, including salary and bonuses, as well as the source of all their benefits, including retirement funding and health insurance.

Business owners spend 110% of their energy on trying to grow their business; yet, if you ask them how they’ve planned their exit, you’ll often get a blank stare.  Some say they plan to work ’til they drop; others say they’ll sell it, sure that it will be an attractive purchase.

How many will exit their business?  Answer: 100% – either head first or feet first.   Either way, how will the business be monetized?

Many don’t know what their business is worth.

I personally know one person who built a small but very successful restaurant chain that enjoyed excellent sales – until he unexpectedly (and rather quickly, unfortunately) contracted terminal cancer and died.   The restaurants soon all went into receivership and were either liquidated or taken-over for pennies on the dollar – the family left with only his life insurance proceeds.

Many have no idea how they will exit.

It didn’t have to happen that way.  He had key people in-place; but, he didn’t know how to plan business continuity.   He also could have created a funding mechanism for his family to monetize all he’d worked for (in addition to his life insurance), but he hadn’t done that, either.

He, like many successful business owners running established businesses, didn’t even know what his business value, let alone have a mechanism in place to convert his asset into liquid dollars…. something he could have enjoyed even if he’d lived.

He probably didn’t want to spend the money on a formal appraisal; but, he didn’t have to do that, either – informal valuations for retirement and exit planning could have met his needs.  [You can learn more about business valuation in our free report, which you can access here.  If you would like a copy, we’ll also make sure you receive other relevant information from time to time.]

How about the business with multiple ownership?  If/when something happens to one of them, do the others want to have the surviving spouse as a partner – maybe an equal partner – even though they may make little or no contribution to business success?

What if there’s a divorce?  What if one simply decides to ‘hang it up’?  What if one files for bankruptcy?  Without the right mechanisms in place, the other owner(s) could be facing litigation or liquidation.

Many don’t know the solutions that are available.

He might have felt he didn’t want to siphon off dollars from cash flow that could be otherwise used to grow his businesses; but, there are mechanisms that can mitigate that concern, as well.

Successful owners of established businesses can be busy – often too busy to pay attention to the very issues they see as their ultimate objective in the first place.

I can empathize.  Years ago I built a publishing business.  Publishing weeklies combines the functions advertising, sales, production, manufacturing, distribution, credit and collections.   Front to back, it entails virtually every business function you can think of, including deadlines and resource management.

I had a general manager named Nick who came up ‘through the ranks’ and became very capable at running the entire organization, allowing me to pursue other initiatives.  I ended-up selling my businesses on the open market; but, had I known, I could have actually sold the whole thing to Nick – probably for more money even though he didn’t have much money.  Simply by putting the right mechanisms in place early, I could have had a ready-made buyer in place… and one who not only knew the business, but knew the customers – and one that wouldn’t have made the bankers nervous.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Someone else likes your key employee – Your competition!

 

iStock Images

Jim Lorenzen, CFP®, AIF®

Successful business owners know they’re successful because of their people.  Within that group there’s usually one or two key people that either seem to make everything run well or, without their presence, the business would suffer a significant loss of revenue.   Sometimes they have special vendor or banking relationships, which means the banker’s terms may not be as good if those key people left, until the business could ‘prove itself’ again.

You value your key people.  So do your competitors.

How does the small business owner compete with competitors who can offer hefty benefit packages – or keep key employee(s) from striking out on their own?

This report shows one easy way small business can compete!  You can access it here.

Hope you find it helpful.

Enjoy,

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Is Your Business A Ticking Grenade?

Jim Lorenzen, CFP®, AIF®

Did you know that as much as 80% to 90% of many business owner’s net worth is tied-up in their businesses?

According to the Exit Planning Institute’s State of Owner Readiness survey, 83% of business owners do not have a plan for how they will leave their business.

It’s interesting when you consider the number one reason a business owner sells is to fund retirement.  The stats above are even more alarming when you consider that 70% of those doing over $1 million in revenue are 54 years old or older; and many businesses distribute all their cash flow to their owners with little in the way of cash reserves set aside.

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Businesses like these are called “lifestyle’ businesses; and many experts  agree that up to 90% of all closely-held businesses operate just this way:  They are simply operated until they shut the doors.   This being the case, it’s no wonder that 50% of all businesses end-up closing their doors unexpectedly.

When this happens, the only thing the business owner can fall back on is retirement savings, if there are any, including the business’ 401(k), which often proves insufficient simply because it’s funding limitations often can fall short of what an owner will need in retirement to preserve his/her pre-retirement lifestyle.

Many business owners intuitively understand that there business either does or should have resale value allowing them to cash-out their equity.  The problem arises, if they’ve waited too long to address this issue, is not only the ability to find a viable buyer with money, but even one that’s ‘bankable’ – one able to arrange financing outside of the selling owner; after all, no seller wants to have to come back in and retake control of a now failing business.

There are a number of solutions available to an owner who begins planning early – the earlier the better.  Just to provide one example, one solution is called the “One-Way Buy-Sell“.

It’s just one possible option among many, but you may find it interesting.  I caution, however, not to assume it’s the right solution for you.  The best solution is one that’s tailored to the business owner’s unique circumstances; but, FYI, you may enjoy learning about this one.  You can get a copy of our One-Way Buy Sell Report by using the link below:

One-Way Buy-Sell Report
Enjoy,

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Jim’s background includes founding, building, and selling five successful businesses and international consulting.  He has been the headline speaker at more than 500 national and international association and corporate conventions for clients such as Foster Grant, Hobie Cat, CapCities/ABC, H.R. Textron, Hearst Corporation, The National Management Association, the National Newspaper Association, and Cox Communications, as well as scores of state, regional, and national conventions.  Jim has also been featured on American Airlines’ Sky Radio heard on more than 19,000 flights, as well as in The Wall Street Journal’s SmartMoney magazine, The Profit Sharing Council of America’s Insights, and has been published in the Journal of Compensation and Benefits, NASDAQ, and in scores of national and international association trade publications.

Trying to Keep Top Talent? This could be your roadmap

 

iStock Images

Jim Lorenzen, CFP®, AIF®

No, that’s no my picture – I wish I were that young and good looking; but he does look like a happy executive who’s worth keeping…. a key employee!

Key employees don’t have to be executives.  It can be anyone who is valuable to a business, particularly a small business that has to compete to attract top talent – and keep them from jumping ship to join a larger competitor or to start their own business in competition with you (trying to enforce non-compete agreements is no fun and costs far too much time and money, not to mention lost opportunities).

Small business owners often aren’t established enough to offer expensive benefit packages, but they want to find a way they can offer the right incentives to benefit their top people.

You might be interested in learning about the REBA, or GEBA, as some call it.  It’s a Restrictive Executive Bonus Arrangment, or Golden Executive Bonus Arrangement.

They’re pretty simple to set-up and can be designed to provide flexibility for the owner.

You can get a copy of the REBA Report by using the button below.  Hope you find it helpful.
Get My REBA Report!
Enjoy,

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

SELLING YOUR BUSINESS? This may be the best kept secret you’ll need.

Jim Lorenzen, CFP®, AIF®

Ever heard of a “One-Way Buy-Sell” arrangement?  Don’t feel bad.  Few people have.  I know when I was in publishing I hadn’t heard of it, either.  I wish I had.

Here’s the tease:  How to sell your business – in advance, at a price you want, and secure the funding, too!

Most businesses are sold on some form of the installment plan; for closely-held businesses, the ‘all cash’ buyer is virtually a misnomer.  The problem with the installment plan is obvious:  What if the business should suffer reversals during the buyout period?  Do you really want to come out of retirement to save the business and go through another sale all over again?

i806a_One-Way Buy-Sell Agreements_001The One-Way Buy-Out arrangement not only addresses all the issues cited above, it also protects against reversals and can secure your retirement, as well as the security of employees and family if something should happen to you before you get your ducks lined up.

Want to learn more?  You can get my report here!

Enjoy,

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.