Reconciling Value in Business Valuation: Beyond Implied Multiples

/in , /by Victor Vazquez

Executive Summary

Most private-company acquisitions are structured on a cash-free, debt-free (CFDF) basis. Owners hear this all the time — but many don’t fully appreciate how much it shapes their actual proceeds.

In simple terms, the buyer purchases the operating business, not your cash or your debt. You keep your cash, and you pay off your debt at closing — similar to paying off a mortgage when selling a house.

That sounds straightforward and the letter of intent (LOI) typically states that the deal is CFDF. But what counts as “cash” and what counts as “debt” is negotiated, and those definitions can meaningfully affect your outcome.

Working Capital: Where Deals Are Won or Lost

Buyers expect a business to come with a normalized level of working capital so it can operate smoothly on day one. Think of it like buying a car — it needs some gas in the tank. But here’s a critical distinction: M&A working capital is not accounting working capital.

In a transaction, working capital is usually calculated as:

  • Assets: Accounts receivable + inventory + prepaid expenses
  • Minus liabilities: Accounts payable + accrued expenses

Cash, interest-bearing debt and other “debt-like” items are excluded from working capital. This matters because working capital and debt-like definitions drive purchase price adjustments at closing. Debt like items are deducted from the seller’s proceeds, dollar for dollar.

What Counts as “Debt-Like”?

Executive Summary

In business valuation, reaching a value conclusion is only part of the analytical process. Professional standards emphasize the importance of reconciling that conclusion to ensure it is economically reasonable and consistent with market evidence. Analysts often compare implied valuation multiples to market benchmarks, but another useful perspective is evaluating the relationship between the concluded equity value and the tangible and intangible assets that support the company’s earnings.

Why Reconciliation Matters?

Professional standards, including the American Society of Appraisers (ASA) Business Valuation Standards, AICPA Statement on Standards for Valuation Services No. 1 (SSVS No. 1), and IRS Revenue Ruling 59‑60, emphasize that valuation requires informed professional judgment. No single formula determines value; analysts must evaluate multiple factors and ensure that their conclusions align with economic reality.

Using Implied Multiples

After deriving a value using an income or market approach, analysts can calculate the implied EBITDA, EBIT, or revenue multiples embedded in the conclusion. These can then be compared to multiples from guideline public companies or transactions in the relevant industry. If the implied multiples fall within a reasonable range, the conclusion is generally viewed as directionally consistent with market evidence.

Considering Intangible Assets

Another perspective is to examine the relationship between the concluded equity value and the company’s underlying assets. Conceptually:

Enterprise / Equity Value ≈ Net Tangible Assets + Identifiable Intangible Assets + Goodwill

If the concluded value significantly exceeds the adjusted net tangible assets, the difference represents the implied value of intangible assets and goodwill. Understanding whether that implied value is economically plausible can serve as another reasonableness check.

The 25 Percent Rule of Thumb

In intellectual property valuation literature, the so‑called 25 percent rule of thumb suggests that a licensor might capture roughly 25 percent of the economic profit generated by a licensed technology or brand through royalties. While widely discussed, the 25 percent rule of thumb should never be used as a primary valuation method. Courts and valuation professionals emphasize that royalty rates must ultimately be supported by market evidence.

In practice, the concept can occasionally serve as a high‑level intuition check when considering whether a royalty rate or implied intangible value appears economically plausible.

Conclusion

Reconciling a valuation conclusion involves ensuring that the analytical framework forms a coherent economic narrative. When implied multiples align with market evidence, and the relationship between tangible and intangible assets appears reasonable, analysts gain greater confidence that their conclusions are defensible under professional standards.

Exit Strategies values control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes. If you’d like help in this regard or have any related questions, you can reach Victor Vazquez, ASA, MRICS at 707-415-2218 or vvazquez@exitstrategiesgroup.com.

What “Cash-Free, Debt-Free” Really Means When You Sell Your Business

/in , /by Al Statz

Most private-company acquisitions are structured on a cash-free, debt-free (CFDF) basis. Owners hear this all the time — but many don’t fully appreciate how much it shapes their actual proceeds.

In simple terms, the buyer purchases the operating business, not your cash or your debt. You keep your cash, and you pay off your debt at closing — similar to paying off a mortgage when selling a house.

That sounds straightforward and the letter of intent (LOI) typically states that the deal is CFDF. But what counts as “cash” and what counts as “debt” is negotiated, and those definitions can meaningfully affect your outcome.

Working Capital: Where Deals Are Won or Lost

Buyers expect a business to come with a normalized level of working capital so it can operate smoothly on day one. Think of it like buying a car — it needs some gas in the tank. But here’s a critical distinction: M&A working capital is not accounting working capital.

In a transaction, working capital is usually calculated as:

  • Assets: Accounts receivable + inventory + prepaid expenses
  • Minus liabilities: Accounts payable + accrued expenses

Cash, interest-bearing debt and other “debt-like” items are excluded from working capital. This matters because working capital and debt-like definitions drive purchase price adjustments at closing. Debt like items are deducted from the seller’s proceeds, dollar for dollar.

What Counts as “Debt-Like”?

Beyond bank debt, buyers often try to treat certain items as “debt-like,” meaning these items reduce seller proceeds at closing. Common examples include:

  • Equipment leases
  • Accrued bonuses or commissions
  • Accrued PTO
  • Unpaid taxes
  • Deferred revenue
  • Customer credits or gift cards
  • Warranty liabilities
  • Pending legal claims
  • Unfunded pension obligations

If it looks like a liability, buyers will want to treat it as one.

The Working Capital Target (or “Peg”)

The working capital target is meant to reflect what the business normally needs to run. The most common method is to average working capital over recent months.

If actual working capital at closing is below the target, the purchase price is reduced. If it’s above, the seller receives a credit.

In theory, the working capital target should be neutral to both sides. In reality:

  • Buyers tend to push for a higher target.
  • Sellers tend to push for a lower target.

This single adjustment can swing millions of dollars, which is why it deserves attention early in the process.

Enterprise Value vs. What You Actually Get Paid

Buyers quote enterprise value (EV) — but sellers care about equity value, which is what actually gets wired at closing.

The basic formula is:

Equity Value = Enterprise Value + cash – debt ± working capital adjustment

Example:
You own a manufacturer generating $5 million of EBITDA. A buyer offers $30 million (6 × EBITDA) — that’s enterprise value. Let’s say at closing you have:

  • Cash: $1M
  • Debt and debt-like items: $3M
  • Working capital today: $3M (vs agreed working capital peg: $4M)

Net proceeds = $30M – $1M (working capital shortfall) – $3M (debt payoff) + $1M (cash you keep) = $27M.

This is why focusing only on the multiple can be misleading — the adjustments determine your real outcome.

What Smart M&A Advisors Do

Strong sell-side advisors don’t just manage a process — they protect value before, during, and after diligence. The best advisors:

  • Pressure-test the balance sheet early to surface “debt-like” items.
  • Model working capital multiple ways so there are no surprises or disputes later on.
  • Negotiating tighter working capital and debt language in the LOI rather than deferring it.
  • Anticipate buyer adjustments in diligence and prepare counter-arguments.
  • Translate headline valuation into real net proceeds for the owner.
  • Create competitive tension among buyers to strengthen negotiating leverage.
  • Run a disciplined closing process where value is most vulnerable.

In M&A, getting the deal signed is important — getting the dollars right is everything. The goal isn’t just a signed deal — it’s maximizing what actually hits your bank account.

If you’re considering a sale, start the conversation early. You can reach Exit Strategies Group founder and President Al Statz at alstatz@exitstrategiesgroup.com

Using Financial Benchmarking to Maximize Business Performance and Value

/in , /by Al Statz

If you want to run a stronger business and ultimately sell it for a premium, you need to know how your company stacks up against peers. That’s where financial benchmarking comes in—one of the most overlooked, yet most powerful, tools for value creation.

At Exit Strategies Group, we rely on benchmarking in our valuations and exit assessments because the message across thousands of real-world M&A transactions is clear: businesses with above-average performance and growth earn above-average multiples. Period.

Here’s how benchmarking helps you sharpen performance, boost enterprise value, and prepare for a successful exit.
________________________________________

Why Benchmarking Matters

Most owners know their numbers; few know how those numbers compare to others in their industry. Benchmarking gives you that clarity—and once you see the gaps, you can act.

Sharper Decision-Making
Benchmarks reveal whether your strategies are working or drifting. You stop managing on instinct and start managing on data.

Pinpoint Growth Opportunities
Lagging margins? Bloated inventory? Slow receivables? Benchmarking quickly highlights where improvement will have the biggest impact.

Measure Real Progress
Tracking benchmarks over time shows whether changes are actually moving the needle.

________________________________________

Core Ratios That Drive Value

1. Profitability Ratios

Profitability is the engine of valuation.

  • Gross Margin – What you have left to cover overhead and generate earnings.
  • Net Profit Margin (EBT, EBIT, or EBITDA Return on Sales) – Should expand as revenue scales and fixed costs spread out.

A simple truth: if your net margin is 12% and peers average 20%, you’re not just behind—you’re limiting your valuation.

2. Efficiency Ratios

These indicate how effectively you manage working capital—the lifeblood of cash flow.

Examples:

  • Inventory Turnover
  • A/R Turnover
  • Days Payable Outstanding
  • Cash Cycle
  • Working Capital Turnover

Shorter cycles and higher turnover generally mean better cash flow and higher value.

3. Leverage & Solvency Ratios

These ratios reflect financial risk—yours today and a buyer’s tomorrow.

Examples:

  • Interest Coverage
  • Capital Structure (debt as a % of total capital)

If leverage is high or coverage is weak, the business starts to look constrained and risky—two words buyers do not reward.

________________________________________

How to Use Benchmarking to Drive Value

1. Compare Your Numbers to Industry Norms

Sources like IBISWorld, RMA, BizMiner, and industry associations provide reliable benchmarks.
If your performance is materially below the standard, you’ve found actionable value levers.

2. Get an Expert to Interpret the Data

Ratios don’t tell the whole story.
Differences in business models, customer mix, capital structure, and accounting can all distort comparisons. A valuation expert or M&A advisor helps separate signal from noise, and determine underlying causes and opportunities for improvement.

3. Set High-Impact, Realistic Targets

You don’t need to fix everything at once. Improving one or two key ratios can materially raise enterprise value.

4. Monitor Consistently

Quarterly benchmarking keeps your team focused, exposes emerging issues, and reinforces continuous improvement.

Summary

Benchmarking isn’t an accounting exercise—it’s a strategic weapon. It clarifies strengths, exposes vulnerabilities, and identifies untapped value. If your goal is to build a more resilient, profitable company—and eventually exit at a superior valuation—financial benchmarking should be part of your operating rhythm.

Exit Strategies Group helps owners understand where they stand and turn data into actionable value-creation plans.

If you’re ready to unlock more value, let’s talk; you can reach Exit Strategies Group founder and President Al Statz at alstatz@exitstrategiesgroup.com .

Important Soft Skills That Every M&A Advisor Should Have

/in , /by Al Statz

When business owners evaluate sell-side M&A advisors, most focus on hard skills: financial acumen, deal execution experience, valuation expertise, and a strong buyer network. Those matter. But here’s the truth—hard skills only get you so far. The best advisors also bring soft skills. These interpersonal and leadership traits often determine whether a transaction closes smoothly and maximizes value—or unravels under pressure.

Here are 10 important soft skills that every M&A advisor should bring to the table:

1. Emotional Intelligence. Business owners only sell once. It’s personal, and emotions run high. A skilled advisor can read the room, understand what’s not being said, and respond appropriately. Emotional intelligence helps navigate sensitive family dynamics, founder pride, and the stress of letting go.

2. Communication. Deals die in silence or confusion. Great advisors explain complex concepts in plain English, keep stakeholders informed, and maintain transparency. They know when to pick up the phone instead of sending another email.

3. Active Listening. Some advisors talk more than they listen. The best ones ask smart questions, shut up, and really hear the owners goals, fears, and non-negotiables. They also recognize unspoken buying signals.

4. Negotiation. Negotiation isn’t just about being tough. It’s about balancing firmness with diplomacy. Top advisors push hard on terms that matter and know where to step back.

5. Adaptability. Every deal throws curveballs, and no two deals are the same. Buyers change their approach, markets shift, diligence uncovers surprises. Advisors who can adapt quickly and recalibrate strategy keep deals alive.

6. Problem-Solving. Every deal has sticking points—tax structures, earnouts, environmental issues, you name it. Advisors who thrive under pressure and find creative solutions move deals toward the finish line.

7. Persistent Patience. M&A deals are marathons, not sprints. Buyers and sellers get fatigued, buyers drag their feet, lawyers bicker. Advisors who remain calm and patient but also persistent help everyone push through the rough spots.

8. Conflict Resolution. Deals create friction. Whether it’s between buyer and seller, or among shareholders, an advisor often plays mediator. The ability to de-escalate tensions and find common ground is invaluable.

9. Discretion. Owners need to be able to trust their advisor to behave in such a way as to avoid causing offense, and of course to maintain confidentiality throughout the process.

10. Resilience. Not every deal makes it to closing. Advisors who bounce back, stay positive, and keep moving forward are the ones who ultimately deliver success.

This isn’t a top 10 list, and of course, it isn’t exhaustive. Additional soft skills like having a keen sense of timing, being able to set and manage expectations, keeping ego in check, and building authentic relationships are also critical to success.

Summary

When you sell your company, don’t underestimate the power of soft skills. It’s the soft skills that turn good M&A advisors into great ones. If you’re exploring a sale or ownership transfer, you can reach Exit Strategies Group founder and President Al Statz at alstatz@exitstrategiesgroup.com.

The Art of Waiting: Patience, Policy, and the Market in 2025

/in /by Joe Orlando

In the current business and financial landscape, characterized by the rapid pace of information, transactions, and decisions, there is a certain discomfort and even annoyance associated with waiting. Where delay often signals indecision, risk, or a missed opportunity, waiting feels unnatural. Yet, in 2025, the financial markets and those participating in them are collectively doing just that: waiting.

  • Waiting on the U.S. Congress to finalize the “Big Beautiful Bill.”
  • Waiting on the resolution of proposed tariffs that could reshape global trade.
  • Waiting to make gifts, close deals, invest in equipment, or sell businesses.

Some believe in the art of waiting as a strategy. John Maeda, the acclaimed artist, designer, technologist, and current Head of Computational Design for Microsoft’s AI platform, has argued for years that in a world obsessed with frictionless experiences and instant feedback, the most profound decisions and designs often emerge from the quiet power of waiting.[1]

Waiting by Design

In his book The Laws of Simplicity, Maeda wrote that “waiting is an essential part of the creative process. It forces a pause, a breath that allows for judgment, restraint, and meaning.”[2] In his world, good decisions aren’t just about speed or ease; they’re about intent and the need to pause and consider before acting. Investors, business owners, and advisors are currently either paralyzed or intentionally delaying significant decisions. Why? Because the markets in which they compete and live face a future in flux. While there is transparency in their access to information, there remains little to no clarity.

Maeda might advise that action without clarity is not bold, but rather reckless, and that a good strategy includes knowing when to slow down. In markets and Maeda’s world of design, intentional waiting is a form of respect for complexity. It’s a space to prepare, observe, and clarify before acting. It’s knowing that rushing into a decision without understanding the rules that will govern it may not be brave; it may simply be unproductive.

The current economy isn’t necessarily broken: it’s simply iterating. Advisors and clients alike would do well to recognize that the current “rules that will govern” are more in a design than a deployment phase. The most impactful moves of 2025 may not be the ones made in June, but the ones made after Congress finishes sketching the tax and trade contours of the next decade. For now, the market is waiting. And that, as Maeda would tell us, might be the smartest move we make all year.

The Stakes are Clear

The inputs (pending legislation, political dynamics, macroeconomics) are complex. The outputs (estate planning, M&A, capital investment) are being held back, not because of fear, but because the user experience is still loading.

  • If the estate and gift exemption drops as scheduled in 2026, families may need to act urgently by year-end 2025.
  • If the current tax bill passes, raising that exemption to $15 million and locking in favorable tax rates, the pressure to act disappears, and planning horizons extend.
  • If bonus depreciation and business interest deductions are expanded, corporations may revive shelved investment plans.
  • If tariffs expand, manufacturing, agriculture, and tech may need to reconfigure supply chains, delaying M&A or capex even longer.

Final Thought: Designing for the Unknown

The professionals who thrive in this environment are those who, like good designers, embrace the silence between the inputs and the outputs. As they wait, they draft deal structures and create estate strategies that can pivot. They monitor the legislative progress, not with panic, but with the discipline of someone who understands when there is clarity and the time to act.

Exit Strategies has certified appraisers serving businesses across all industries with deep  expertise in the valuation of enterprise and fractional ownership interests for tax, financial reporting, and strategic purposes. If you’re interested in discussing these topics and require these valuations, please contact Joe Orlando at 503-925-5510 or jorlando@exitstrategiesgroup.com. We’re here to help.

References: 

[1] https://yingyingzux.medium.com/the-laws-of-simplicity-john-maeda-fff929abda59

[2] http://lawsofsimplicity.com/

Why Founders Must Strengthen Leadership to Maximize Exit Value

/in , /by Al Statz

You’ve built a solid business. It’s profitable, growing, and respected in your industry. But here’s the hard truth: if your company can’t run and scale without you—it’s not as valuable as you think.

Overdependence on the founder is one of the most common value-killers in lower middle market companies. Buyers and investors spot it quickly, and when they do, they get cautious or lose interest. It introduces transition risk, limits scalability, and creates headaches in a sale process. That means lower offers, tougher terms, and a longer runway to exit.

If you’re the one closing deals, managing key relationships, making every big decision, or firefighting across the company, then you’re not running a scalable business. You’re running a founder-reliant operation—and that’s a red flag for most serious purchasers of companies. (If you’re young and energetic enough and open to leading a minority ownership position, consider a majority recapitalization strategy.)

 

The Fix: Build a Business That Runs Without You

The fastest path to a higher valuation and a smoother exit is straightforward: build a leadership team that can operate without your constant involvement. Here’s how:

  1. Develop Internal Leaders

Start by identifying the high-potential players already on your team. Mentor them. Put them in stretch roles. Promoting from within has big advantages:

  • Cultural continuity – They already know how you work.
  • Morale boost – People stay when they see a path to growth.
  • Cost-effective – Avoids costly hiring mistakes and onboarding cycles.
  • Faster ramp – Internal leaders already know your systems and processes.
  1. Delegate Like You Mean It

Delegation isn’t dumping tasks—it’s handing off responsibility and letting others make decisions. Push authority down. Let your managers own their functions. If every decision still runs through you, you’re not delegating. You’re bottlenecking.

  1. Institutionalize Succession Planning

Succession planning isn’t just for retirement—it’s a business continuity imperative. Make it routine to talk about who’s next in line, not just for your role, but for every key position. Buyers love seeing a talent pipeline. It signals stability and scalability.

  1. Eliminate Single Points of Failure

Which functions in your organization are too dependent on one person? Sales, IT, finance? Document processes and procedures. Cross-train. Put backup plans in place. Redundancy lowers risk and enables growth. That’s what buyers pay for.

  1. Lead the Change

Owners often have a hard time letting go. But if you want your company to grow—or sell—you have to move from day-to-day operator to coach, strategist, and culture-builder. That’s how you build and protect enterprise value and increase your company’s attractiveness to buyers.

Final Thought: Make Yourself Useful but not Critical

The more replaceable you are, the more valuable your company becomes. If you’re still the rainmaker, the firefighter, and the final decision-maker on everything, your business probably isn’t worth much.

Start by building your bench. Empower your team. Take yourself out of the critical path. That’s the path to creating real value—and real options for a successful exit.

For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Al Statz at alstatz@exitstrategiesgroup.com.

Work “on” your business to build transferable value

/in /by Al Statz

If you’re a business owner, you know how easy it is to get caught up in the daily hustle and bustle of running the business—I inhabit that space myself most of the time!  It’s all too common to find ourselves knuckling down on our inboxes, serving clients, and managing employees, and putting out fires

However, this hands-on approach, while often necessary in the early stages of a business, can create a business that’s overly dependent on us as owners. To truly scale, we need to shift our focus from working “in” our business, to working “on” it.

The pitfalls of working “in” your business

When you’re constantly immersed in daily operations, you risk becoming a bottleneck for growth. Your business becomes limited by your personal knowledge, relationships, capacity, energy, and time. This not only stunts potential growth but also makes it challenging to step away or eventually sell the business.

The power of working “on” your business

Working “on” your business involves taking a step back and focusing on strategic growth and development, such as:

  1. Developing systems and processes that can run without your constant oversight.
  2. Building a strong management team that can operate the business in your absence.
  3. Investing in technology and infrastructure to improve efficiency and scalability.
  4. Focusing on strategic partnerships, recruitment and talent development.
  5. Strategic planning for long-term growth, sustainability and eventual exit.

By shifting your focus to working “on” your business, you’ll reap several benefits:

  • Scalability: Your business will be better positioned to handle growth and expansion.
  • Increased business value: A business that can operate without constant owner involvement is more attractive to potential buyers.
  • Work-life balance: With less day-to-day operational stress, you can achieve a healthier balance between work and personal life.
  • More personal freedom: With systems and teams in place, you’ll have the flexibility to pursue personal goals outside of your business.

The goal is to create a business that works for you, not the other way around. By adopting this approach, you’ll not just build a successful business – you’ll have a more fulfilling entrepreneurial journey.

Working “on” a business is the key to building transferable value.

For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Al Statz at alstatz@exitstrategiesgroup.com.

How SBA’s New Citizenship Requirement Impacts Business Owners

/in , , /by Adam Wiskind

The U.S. Small Business Administration (SBA) has announced significant updates to the eligibility requirements for its 7(a) and 504 loan programs, effective March 7, 2025. These changes focus on the citizenship status of borrowers and have a major impact on business operation loans and business transactions financed through the SBA loan guarantee program.

What’s Changed?

Previously, small business owners qualified for SBA loans even if up to 49% of their ownership was held by foreign investors. However, that flexibility has been eliminated. Under the new policy, to qualify for the loan guarantee program:

  1. Businesses must be 100% owned by U.S. citizens, U.S. nationals, or Lawful Permanent Residents (LPRs) to qualify for SBA 7(a) and 504 loans.
  2. Any ownership stake by foreign nationals, including minority shares, makes a business ineligible for SBA financing.
  3. Loan applicants must certify that none of the beneficial owners (individuals who directly or indirectly own or control a company) are ineligible persons.

Implications for Business Owners

These rule changes impact business owners in two significant ways:

  1. Startups and businesses with diverse ownership arrangements that would benefit from an SBA operating loan for working capital, purchasing equipment or refinancing debt will need to survey all their existing owners according to the new citizenship requirements.  Any business with an ineligible owner will automatically be disqualified from SBA financing.  Companies with non-citizen silent partners or outside investors must reassess their ownership structures or seek alternative funding.
  2. Another significant consequence of this policy change impacts business owners looking to sell their companies. The majority of US businesses sold for less than $5 million (the SBA program’s cap) utilize the loan guarantee program.  If your potential buyer is an investor or investor group with members that are not U.S. citizen or lawful permanent resident, these new rules could complicate or even sink the transaction.  Some implications are:
    • Foreign Investors Are Disqualified: Even minority foreign ownership stakes are no longer allowed, meaning businesses that previously attracted foreign investors may now struggle to find financing options.
    • Fewer Potential Buyers: Since SBA financing is a popular tool for business acquisitions, this restriction significantly reduces the pool of eligible buyers, potentially lowering demand for businesses seeking to sell.
    • Seller Financing Might Be Necessary: Without SBA loan access, buyers may need alternative funding sources, which could include seller financing, private equity, or non-SBA commercial loans.

Who Is Now Ineligible?

According to the updated SBA guidelines, individuals in the following categories cannot own any portion of a business applying for 7(a) or 504 loans:

  • Foreign nationals
  • Individuals granted asylum
  • Refugees
  • Visa holders
  • DACA recipients
  • Undocumented immigrants

Even a 1% ownership stake by an ineligible person disqualifies the entire business from receiving SBA financing.

Why Did the SBA Make This Change?

SBA Administrator Kelly Loeffler stated that these reforms are part of a broader initiative to prioritize U.S. citizens and permanent residents in accessing federal funding. The updates also align SBA procedures more closely with federal immigration compliance policies.

What Should Business Owners Do?

If you are planning to apply for an SBA loan, consider the following steps:

  1. Audit Your Ownership Structure: Identify all individuals or entities with direct or indirect ownership, regardless of percentage.
  2. Verify Citizenship Status: Ensure all owners are U.S. citizens, U.S. nationals, or LPRs. Gather necessary documentation, such as passports or green cards, before applying.
  3. Reorganize Ownership if Needed: If your current structure includes ineligible owners, consider restructuring before applying or explore alternative financing options.
  4. Communicate Early with Your Lender: Inform your lender about your ownership structure upfront so they can guide you through compliance and avoid delays.

If you are planning to sell a business where buyers might look to the SBA loan program to finance the transaction:

  1. Select a transaction advisor that understands the SBA loan program and its new citizenship requirements.
  2. Be sure that your advisor understands how potential buyers propose to finance an acquisition of your business.
  3. If an SBA loan will be necessary to finance the transaction, make sure that your advisor verifies the citizenship status of prospective buyers early in the process. This could even include the buyer’s spouse in some instances.
  4. Consider alternative financing options if the SBA-backed loans are not available to otherwise qualified buyers.

Final Thoughts

The SBA’s policy shift represents one of the most significant changes to the loan guarantee program in recent years. While it may limit access to financing for some business owners, it ensures that SBA funding is directed toward those meeting strict citizenship criteria.

For business owners looking to sell, this change underscores the importance of understanding buyer eligibility and planning financing strategies accordingly. Business owners and their advisors must now consider ownership status as a critical eligibility factor, alongside business creditworthiness, tenure, and revenue.

By staying informed and proactive, business owners and business buyers can navigate these new requirements and secure the financing they need.

We can help you to sell your business.  If you’d like to have a confidential, no commitment discussion on your exit plans or have related questions, please contact Adam Wiskind, Senior M&A Advisor at (707) 321-5186 or awiskind@exitstrategiesgroup.com.

Give Yourself the Gift of a Valuation This Holiday Season?

/in , /by Al Statz

As the year winds down, there’s a gift every business owner should consider—a current valuation of your business. Knowing the true value of your business is a gift that keeps on giving. Here’s why.

Estate Planning

One of the key benefits of a valuation is that it sets the groundwork for smart estate planning. If the unforeseen happens, knowing your business’s worth simplifies the inheritance process for your heirs and ensures they receive what you intended. It can also help prevent disputes and legal entanglements that can arise when valuation estimates are murky or outdated.

Exit Planning

Whether you’re ready to step back next year or in the next decade, a valuation helps solidify your exit plan. With an accurate understanding of your business’s worth, you’re empowered to plan the best timing for a sale or transfer, negotiate confidently, and minimize surprises.  Unfortunately, studies show most owners spend very little time planning how they will exit their business. The smaller the business, the less likely the owner is to plan ahead—most start preparing less than a year before selling. This rushed approach can lead to a lower sale price, lost leverage in negotiations, failed transactions, and missed opportunities to boost the business’s value before hitting the market.

Build a Stronger Business Next Year

Even if a sale isn’t on your immediate horizon, the insights gained from the valuation process can guide strategic decisions to increase your company’s value over time. Knowing what adds or detracts from your company’s worth can help you decide on investments, operational changes, and growth strategies.

This holiday season, consider giving yourself a gift of increased clarity, direction, potential liquidity and peace of mind in the new year.

To learn more, see our prior post on the Six Benefits of Monitoring Company Value.

Scaling for Sale: Growth Strategies that Double as Exit Plans

/in , , /by Al Statz

As a business owner, you’re likely consumed with the daily challenges of building and growing your business. The question of selling might seem like a distant concern—something to worry about years down the road. But the reality is that planning your exit and growing your business are two sides of the same coin.

We’ve been conditioned to think about entrepreneurship in distinct phases: First, you build; then, you grow; finally, you sell or pass it on. It seems logical, doesn’t it? But this linear thinking misses a crucial point: Building scalable value and preparing for an exit are not separate processes—they’re intrinsically linked.

By viewing them as separate endeavors, we put ourselves at a disadvantage. We might inadvertently grow a business that provides a decent income in the here and now but has little value to future buyers. Instead, adopting a seller’s mindset from the outset can transform how you approach your business, driving growth and creating lasting value.

Most Entrepreneurs Exit Empty Handed
Estimates suggest only about 25% of businesses on the M&A market will successfully transition to new owners. Even certified and well-networked M&A advisors report that 50% of their engagements terminate without closing, according to the IBBA and M&A Source Market Pulse Report.

The reasons are myriad from valuation discrepancies, conflicting expectations, and due diligence challenges, to underlying operational issues such as customer concentration, overreliance on key personnel, and static business models.

So while starting a business is challenging, successfully exiting one can be just as difficult. This is where the wisdom of maintaining a “seller’s mindset” comes into play. Business owners who adopt a seller’s mindset aren’t just building for today or tomorrow; they’re crafting a legacy designed for eventual transition.

This approach doesn’t mean these leaders are any less passionate or committed to their ventures. On the contrary, it adds a layer of strategy and foresight that can significantly enhance a business’s long-term value and success.

The Entrepreneur’s Paradox: Less Doing, More Growing
One of the key principles of building a business with a seller’s mindset is focusing on working “on” the business rather than “in” it. This shift in perspective is part of creating a company that can operate independently of its owner.

When you work “in” the business, you’re caught up in day-to-day operations, fighting fires, and personally handling key client relationships. While this hands-on approach is often necessary in the early stages, it can create a business that’s overly dependent on you as the owner.

Working “on” the business, however, involves:

  1. Developing systems and processes that can run without your constant oversight
  2. Building a strong management team that can operate the business in your absence
  3. Creating a strategic plan for long-term growth and sustainability
  4. Investing in technology and infrastructure to improve efficiency and scalability
  5. Focusing on strategic partnerships and market positioning

By adopting this approach, you’re not only creating a more valuable business in the eyes of potential buyers, but you’re also giving yourself more freedom to focus on high-level strategy and personal goals.

From Owner’s Pride to Buyer’s Prize
As you shift from working in your business to working on it, your perspective naturally begins to align more closely to that of a potential buyer. And ultimately, your business is only worth what someone else is willing to pay for it.

So, what exactly makes a business valuable to buyers? The answer might surprise you. While profitability matters, it’s not always the primary driver of value in M&A transactions. Buyers are looking for businesses that offer more than just a healthy bottom line—they want potential for growth, strategic advantages, and operations that can thrive under new ownership.

For example, we sometimes see businesses with 40% or more customer concentration, particularly in the manufacturing space. It happens easily enough—the business has a great relationship with its biggest customer, and the work is steady and profitable. It’s great income now, but it makes this business a risky proposition for a future buyer.

As mentioned above, over-reliance on an owner can also diminish business value. A business that depends heavily on the owner’s personal relationships, expertise, or daily involvement may struggle to maintain performance under new leadership.

Other factors that can negatively impact value include:

  • Failure to innovate or keep up with industry trends
  • Delayed investments in technology or equipment
  • An unstable workforce or high turnover rates
  • Lack of documented processes and procedures
  • Inconsistent financial performance or unclear financial records

Building your business with a seller’s mindset means identifying and developing value drivers while simultaneously driving out risk factors that could reduce buyer confidence or limit their ability to succeed.

The Valuation Report Card
Now that you know a little bit about what buyers value, it’s time to take an honest look at your own business. But how can you objectively assess your company’s worth and identify areas for improvement? Consider getting a regular estimate of value.

Imagine sending your child through 12 years of school, only to discover in their senior year that they’re woefully unprepared for graduation. It would be a shocking and potentially devastating revelation, wouldn’t it? Yet, many business owners unknowingly put themselves in a similar position.

Just like a report card provides feedback on a student’s progress, a business valuation can offer vital insights into your company’s health and market position. A valuation can serve as a comprehensive scorecard, highlighting your business’s strengths and pinpointing areas that need improvement. It provides a clear picture of how the market perceives your company and what factors are driving or diminishing its value.

Without this periodic assessment, you might be operating under false assumptions about your business’s worth. Perhaps you’re overestimating its value, setting yourself up for disappointment when it comes time to sell. Or maybe you’re undervaluing your company, putting your financial security and legacy at risk.

Calculating Your Exit Equation
But knowing your business’s value is only half the equation. The other half? Understanding what that value means for your personal goals. After all, the ultimate purpose of building a valuable business isn’t just to create an attractive asset—it’s to create the financial foundation for the life you want to lead.

Many business owners fall into the trap of waiting for a predetermined age or milestone to sell their company. However, this approach can lead to missed opportunities or, worse, financial shortfalls. Instead, consider aligning your exit strategy with your personal financial goals by understanding your “lifestyle number.”

Your lifestyle number is the amount of capital you need to receive from your business exit to achieve financial freedom and realize your goals or live your ideal lifestyle. When you get clear about your goals—and have an objective opinion on how much your business is worth—you can make better informed decisions about growing (and exiting) your business.

The Exit Roadmap
Finally, it’s time to think about the actual nuts and bolts of preparing for a sale. Many business owners make the mistake of treating their exit as an event rather than a process. For some owners, this means they’re leaving significant money on the table when it’s time to sell.

Depending on the nature of your business, a comprehensive exit plan might address areas like these:

  1. Transferrable contracts: Ensure key contracts can be transferred to a new owner without dispute or disruption.
  2. Management team retention: Consider tying up your management team with stay bonuses or equity to ensure continuity.
  3. Clean financials: Maintain clear, organized accounting records. Consider audits to boost buyer confidence or a sell-side quality of earnings report prior to going to market.
  4. Working capital optimization: Understand how working capital impacts your take-home money after a sale and optimize it in the years leading up to a sale.
  5. Tax planning: Understand the tax implications of different deal scenarios to maximize your after-tax proceeds.
  6. Buyer options: Explore different exit options and the pros and cons of each. Understand how each option might impact your key managers, family members, or real estate strategy.

Some of these strategies can take two or three years to put in place. Plus, some sellers can’t walk away immediately after a transaction. Depending on deal terms, you may need to provide a certain amount of seller financing or stay involved in a consulting role.

Don’t wait to find out you have to trade value for time. Plus, the sooner you plan, the more options you will have and the better prepared you’ll be to exit with leverage, on your own terms.

Seller Strategy = Growth Strategy
At the end of the day, growing your business with a seller’s mindset isn’t about looking for a quick cash-out; it’s about creating something of lasting value that can thrive even as ownership changes hands. By adopting a seller’s mindset, you’re committing to:

  1. Creating systems and processes that allow your business to thrive without your constant involvement
  2. Building a strong, capable team that can drive the business forward
  3. Focusing on sustainable growth and diversification
  4. Maintaining clean, transparent financials
  5. Continually assessing and improving your business’s value

This approach not only prepares you for a successful exit but also creates a stronger, more resilient business in the present. It pushes you to think strategically, to focus on what truly adds value, and to build something that can stand the test of time.

Whether you plan to sell your business next year, pass it on to the next generation, or continue growing it for decades to come, building your business with a seller’s mindset will serve you well. It’s not about whether you’re ready to sell right now; it’s about maximizing the value of what you’ve been building and creating options for your future.