Exit Strategies Insights

Industry insights, knowledge base and announcements for business owners and professional advisors

Tip for Maximizing Business Value: Diversify Your Customer Base

Our seller and business valuation clients are usually proud of their company’s long-term relationships with major clients, and with good reason. Having a high percentage of business with a few customers can be a very profitable and personally satisfying way to run a business. It allows management to focus its attention and fine tune company operations to deliver exceptional service in a very cost-efficient manner. Customer acquisition expenses (marketing, sales, estimating, etc.) can be greatly …

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Normalizing Income Statements for Business Sale Transactions

One of the fundamental roles of a business broker is to properly adjust, “normalize”, or “recast” the income statements and tax returns of a business to determine its true earnings power. Where the business has a track record of profitability and the promise of future earnings, market- and income-based methods of valuation are then applied to determine a reasonable price that a buyer should be willing to pay and the seller is likely to receive. Normalizing involves …

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Sales of Small Businesses on the Upswing

According to a recent Inc. Magazine article, “Let’s Make a Deal”, sales of small businesses in Q3-2013 jumped 42% from the same quarter in 2012. Inc. quotes Curtis Krocker, group manager of BizBuySell.com, “After four years of depressed selling and buying activity, the markets are coming back.” Why? Motivated sellers and available financing. Many older baby boomer business owners are ready to sell their business and retire. Having held off selling during and immediately after …

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Related Party Transactions in Valuation

I was recently engaged to value a client’s interests in two businesses. These two businesses had several shareholders in common, and the businesses were doing business with each other.  We refer to these as related parties and related party transactions. Our client’s ownership percentages were different in each business, so we were concerned with whether transactions between the companies were priced at market, versus prices that unfairly benefit one or the other business. I investigated …

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What Sells Businesses? Quality Information.

I recently took on an acquisition client to help them locate and purchase a business here in Northern California.  Over several months we looked at a dozen or so businesses offered by business brokers.  What an eye-opener it was seeing how other brokers present information to prospective buyers! I certainly knew that prior to signing a non-disclosure agreement (NDA); one should only expect to see a 1-2 page blind executive summary with general information about …

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Pro’s and Con’s of Price Formulas in Buy-Sell Agreements

Exit Strategies is regularly called upon to determine the value of closely-held company shares for buy-sell transactions. Common events that trigger a transfer of shares are when a shareholder retires or resigns from employment, is fired, dies, or becomes disabled, divorced or insolvent. There are several facets to successful buy-sell transactions, but valuation is typically the most contested issue. The pricing method prescribed in your by-laws, shareholder, buy-sell or stock restriction agreement, as the case may be, …

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Upcoming Event: A Fast-Paced Overview of Business Valuation for Attorneys

On January 29, 2014, Al Statz of Exit Strategies will be speaking to the Sonoma County Bar Association in Santa Rosa, California. The workshop, titled “A Fast-Paced Overview of Business Valuation for Attorneys”, will rapidly cover a wide range of valuation topics that will help attorney’s spot important issues and use business valuations more effectively in their practices. The comments will address valuations in estate, gift and tax, shareholder disputes, CC§2000 cases, marital dissolution, and of course …

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Tip for Maximizing Business Value: Build for the Future

Is your business built for the future? Consumer behaviors, markets, regulations and technology are changing so fast these days that many business owners are having trouble keeping up.  And if the business doesn’t have a strong future, it simply won’t trade at a high valuation, or many not have any value at all. Private business owners must constantly monitor changes in their industry and marketplace, and make appropriate investments and take appropriate steps to insure the …

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Why Should I Bother Valuing My Business?

A new article at Forbes.com addresses a question in the minds of many small business owners, “Why Should I Bother Valuing My Business?”  The author explains several of the common reasons small business owners have their businesses appraised by an independent business valuation expert, as they prepare for a sale, buy-out, contingencies, retirement, or passing the business on to children.

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Factors to Consider When Valuing a Closely Held Company

Revenue Ruling 59-60 was developed by the Internal Revenue Service to provide guidelines for the valuation of closely held companies. The ruling specifically addresses stock valuations for gift and estate tax purposes, yet the principles set forth are commonly applied in a wide spectrum of business valuations, including those prepared for employee stock ownership plans, charitable contributions, shareholder buy-sell agreements, mergers and acquisition transactions, SBA loans, corporate reorganizations, marital dissolutions and bankruptcies. Revenue Ruling 59-60 suggests analyzing …

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