On Playing Offense

“…Whatever Someone Is Willing to Pay”

A phrase we hear pretty frequently is “a business is worth what someone is willing to pay for it.” And of course, this is a true statement. When a business sells… that’s the number.

But the problem with this statement is that it’s reactionary.

Reactionary is bad.

Play Offense

A business valuation enables you to gain an understanding of the most likely value of your business. It is this information that will place you at an advantage when you sit down at the proverbial negotiations table. Consider this – would you start negotiating the price on a house or a car without an understanding of likely value? Probably not. Working with a certified valuation professional arms you with the information and data to both establish value as well as back it up.

Demonstrate Value

One of the things we do when we value a company is to try to ascertain how to value a particular business relative to it’s peers. While we traditionally steer clear of rules of thumb, we’ll indulge for a moment. Let’s assume a Widget Manufacturer should sell for 1x earnings. That’s the average widget manufacturer. Is your company just average? Absolutely not. To get to a more accurate value, we work through a process to dig in and understand why your business is more or less valuable than the market average.

Increase Value

Regardless of method used to value a company, the number one concern for a buyer is their ability to generate profit. Period. The most reliable indicator of this ability is your past performance. But what is often obscured in past performance are items like “non-operational” expenses, one time or unusual expenses, personal expenses run through the business, shareholder perks, etc. We work with you to document those and build them back into the value of your business. This has a direct, significant impact on increasing both actual and perceived value.

Takeaways

Yes, we agree – value is “whatever someone is willing to pay.” But, the idea is to help someone understand why they should pay more. Change the dynamic: play offense, demonstrate value, and increase the value.

.

SBA Loan Checklist

Getting ready to request an SBA Loan for financing?  Like a lot of things in life, it’s best to go into it being prepared.  That means understanding the SBA Loan Process, and doing all your homework early.

To help you along that path, check out our SBA loan checklist below:

  • SBA Loan Application –: Borrower Information Form – SBA Form 1919
  • Personal Background and Financial Statement – To assess your eligibility, the SBA also requires you complete the following forms:
  • Business Financial Statements – To support your application and demonstrate your ability to repay the loan, prepare and include the following financial statements:
    • Profit and Loss (P&L) Statement – This must be current within 90 days of your application. Also include supplementary schedules from the last three fiscal years.
    • Projected Financial Statements – Include a detailed, one-year projection of income and finances and attach a written explanation as to how you expect to achieve this projection.
  • Ownership and Affiliations – Include a list of names and addresses of any subsidiaries and affiliates, including concerns in which you hold a controlling interest and other concerns that may be affiliated by stock ownership, franchise, proposed merger or otherwise with you.
  • Business Certificate/License – Your original business license or certificate of doing business.   If your business is a corporation, stamp your corporate seal on the SBA loan application form.
  • Loan Application History – Include records of any loans you may have applied for in the past.
  • Income Tax Returns – Include signed personal and business federal income tax returns of your business’ principals for previous three years.
  • Résumés – Include personal résumés for each principal.
  • Business Overview and History – Provide a brief history of the business and its challenges. Include an explanation of why the SBA loan is needed and how it will help the business.
  • Business Lease – Include a copy of your business lease, or note from your landlord, giving terms of proposed lease.
  • If You are Purchasing an Existing Business – The following information is needed for purchasing an existing business:
    • Current balance sheet and P&L statement of business to be purchased
    • Previous two years federal income tax returns of the business
    • Proposed Bill of Sale including Terms of Sale
    • Asking price with schedule of inventory, machinery and equipment, furniture and fixtures

Understand Value Now to Avoid an Uncomfortable Retirement

For most entrepreneurs their business is the largest asset that they own.  Further most entrepreneurs have built their company with an eye towards and eventual sale and retirement.  Given these facts, a successful and enjoyable retirement is largely contingent upon the successful sale of the company.

Given the importance of the business in their life plans, it’s critical to rely on more than just the subjective opinion of friends and acquaintances who have sold a business.  Again, it’s likely the largest asset in a portfolio – why leave that to hearsay and chance?

Exit planning ultimately comes down to asking (and answering) one key question: “Can my company be sold for enough money to fund my retirement and lifestyle requirements?”   In many cases the answer is no – but you are now well positioned to attack the problem and position yourself for a successful exit.

What to Do Once You Know Your Value

Involve your deal team.  Selling a business of any size is a significant undertaking.  Ideally you should have an exit planning team of trusted advisors:

  • Valuation Expert
  • CPA / Tax Advisor
  • Financial Planner / Wealth Manager
  • “Improvement” Consultant
  • Business Broker / M&A Intermediary
  • Transaction Attorney

We’re often retained by sellers looking to exit their business immediately.  We can say without exaggeration that its terrible to be the bearer of bad news when current exit plans do not meet current reality.  Getting a team in place early, understanding valuation early, and putting a plan in place is the surest recipe for success when it comes to exit planning and a happy retirement.

Enterprise vs. Personal Goodwill: How they differ and affect divorce valuations

Estimating a value of intangible assets such as goodwill can be highly speculative. This is often a significant point of contention in scenarios involving two parties rallying for a fair market value of a business. We see it all the time in divorce proceedings.

The 101 on Goodwill

Goodwill can be segmented into two categories, enterprise goodwill and personal goodwill. Enterprise goodwill attaches value to specific competitive advantages or differentiators of a company indicating that these factors attribute to the company’s earnings potential. Personal goodwill ties value to an individual’s contribution to a company’s operations such as relationships that are not deemed transferrable upon the absence of said individual. Ultimately, personal goodwill states that there is an element (aka a revenue/earnings stream) that would disappear with the loss of a particular individual.

Each state treats the inclusion or exclusion of personal goodwill as a marital asset differently. Below is a summary of how the country fairs:

  • 19 states include personal goodwill as a marital asset
  • 24 states plus DC exclude it
  • 8 states have no formal precedent

The inclusion or exclusion of goodwill can have material impact on the overall value of a business – which is more than likely a small business owner’s largest asset. However, overstating the valuation with goodwill may base divorce proceedings on a company value that may or may not be realized.

Our advice to business owners (or their spouse) involved in a divorce? Ask your divorce attorney about your state’s treatment of goodwill assets and retain a Certified Valuation Analyst to work with your team in providing a value to one of the largest points of contention during this process.

How M&A Strategy Can Help Mid-tier Government Contractors Scale

Mid-tier contractors face unique challenges competing for federal dollars.  Sized out of small-business preference programs, they must battle large vendors’ hefty BD teams and extensive past performance qualifications. Growing contracts organically is time consuming, requires large amounts of cash upfront, and necessitates niche expertise relating to each contract. As we’ve all seen, the preference for incumbent awards always makes new bids a challenge.  With that in mind- a smart buy-side merger & acquisition strategy can help mid-tier government contractors rapidly growth their businesses and readily compete with large government contractors. Here are seven ways an M&A strategy can help you grow your government contracting operations and business. Read more

EPI Event Recap – On Being Ready to Acquire

Great event this morning!  Much thanks to our moderator Aaron Ghais and panelists Mike Molino, Chris Carpenito, and Ralph Pope this morning.  Loved hearing your insights and war stories as experienced acquirers.

Recapping some of the high points discussed: Read more

Dan Doran OpEd – Washington Business Journal

Quantive’s Dan Doran was recently published in the Washington Business Journal (Paywall).  Dan argues that the IRS’s so-called 2704 proposal will be hugely detrimental to family business ownership.

These regs will make it increasingly difficult to keep businesses and farms in the family – essentially the opposite of the American Dream.

“The IRS has proposed a set of regulations with the intent of limiting certain abuses in tax planning that are often used by the wealthy. They will have a devastating impact on family businesses.”

Read more

Quantive Welcomes New Ops Chief

We’re super happy to have Rob Ratcliffe joining Team Quantive.   Rob joins us after retiring as a career Special Forces officer in the U.S. Army.  His time in the military included various commands (to include a Special Forces A-Team), as well as several years as a strategic planner.   His role at Quantive is simple: help us “Get Things Done.”  His background fits well with our philosophy of “Walk Softly and Execute Relentlessly.”

Suffice it to say he’s over qualified for his role here, and we’re humbled to have him aboard.

Learn more about Rob here.

Dan Doran Awarded Exit Planning Certification

Quantive is pleased to announce that Mr. Doran has earned the CEPA Exit Planning designation.  While Mr. Doran has been working in the field for over a decade, he feels that a commitment to ongoing education in the field is fundamental to success.

Original Press release follows.

 

Elite Business Advisors Earn Prestigious CEPA Designation

Read more