High Points News And Information

Value Drivers: Establishing Realistic Growth Strategies

Buyers tend to pay premium prices for companies that have developed realistic strategies for growth. This growth strategy must be communicated to a potential buyer so that the buyer can see specific reasons why cash flow (and the business itself) should grow after it is acquired. The growth strategy is illustrated in pro forma statements that are used by buyers (and their investment bankers) to create a discounted future cash flow valuation of your company.

Read More

Key Employees Series: Part 3- Phantom Stock Plan: The Stock Plan That Isn’t

When an owner decides to financially motivate a key employee (or management in general), his first question should be, “Can this employee increase the value of my business in a measurable way?” If the employee in question is a sales manager and the answer yes, then the owner designs an incentive plan to motivate the sales manager to behave in a way that fosters an increase in business value. This may seem elemental, but it is not. Too often we see stock awarded to a sales manager when a cash-based plan directed at increasing sales is not only more effective but also more appreciated. Let’s look at how one owner solved the problem of matching the incentive to his desired result. During an annual performance review, Tom Sugar’s Chief Operating Officer expressed an interest in owning part of the company. Tom was really not interested in taking on a co-owner because he eventually wanted to transfer his company to his daughter. He didn’t want to sell or bonus stock but he didn’t want to lose his key employee. Tom was at an impasse. His CPA had told him that it rarely made sense to mix ownership among family and employees. On the other hand, […]

Read More

Key Employees Series: Part 2- Incentive Plans

Experts and laymen agree that one constant of successful companies is a stable, motivated management team. This quality not only contributes to corporate success, it is also key to the business owner’s successful business exit. Should you decide to sell your business to a third party, you’ll discover that potential buyers place significant value on the strength of your management team—if that management team can be expected to remain after you have left the business. Similarly, if you contemplate selling the business to family (or to employees), the likelihood of being paid for the business after you’ve left can be entirely dependent on the strength of your remaining management team. In short, capable management remaining with the company can be the key to getting top dollar for your business. Without such management your exit may be more difficult. One of the many factors involved in creating, motivating and keeping good management is the creation of a properly designed incentive plan for key employees. To be successful, an incentive plan must motivate the management team to increase the value of the company in a measurable way. Only by increasing company value do employees receive the incentive (ownership or cash). Successful plans share four […]

Read More

Key Employees Series: Part 1- Handcuffing Key Employees To Your Company

There are four characteristics of a successful Employee Incentive Plan. Namely, such plans should: Be specific, not arbitrary, and be in writing; Be tied to performance standards; Make substantial bonuses; and Handcuff the key employee to the business. In this issue we focus on the last characteristic; handcuffing the key employees to the business. The goal of the handcuff is to keep the employee with the company the day after and even years after the bonus is awarded. To help achieve this goal, owners and their advisors typically incorporate several techniques into a stock purchase or non-qualified deferred compensation plan. Vesting Schedule First, a vesting schedule handcuffs employees to the company for a time period necessary to become entitled to the bonus awarded. I prefer a continual or rolling vesting schedule in which a single vesting schedule is applied separately to each year’s contribution. Using this schedule, an employee is handcuffed to the company for a long period of time because the key employee is never fully vested in the most recent contribution. Let’s assume that a lump sum award is assigned to an employee: one-half of which is given immediately and the other half subject to a five-year vesting […]

Read More

Six Reasons You Need A Certified Business Valuation

For business owners, paying non-essential professional fees is nearly as unpalatable as paying unnecessary taxes. If you are convinced that you don’t require the services of a certified valuation analyst to value your company, this will not be your favorite issue of this newsletter. This issue (and an open mind) may, however, help you avoid an unpleasant encounter with the IRS and help you to reap all of the value of your life’s work.

Read More

Cash Flow Forecasting: The Ultimate Reality Check

Why is cash flow is so important to third party buyers, and by extension, to sellers of closely held companies? In short, a seller must demonstrate an increasing stream of cash flow from the business. Without a healthy cash flow, a buyer may pass over the opportunity to buy your business in favor of purchasing a “good” company with less risk.

Read More

What Is Your Business Really Worth?

For many owners, the answer to one question determines their ability to leave their companies: “How much money will I get when I sell?”

This question is indeed critical, and answering it is the second step of The Seven Step Exit Planning Process™. Realistically, you can’t exit your business unless you achieve financial independence, and the primary source of that independence is likely to be the funds you receive for your business when you leave.

Let’s look at fictional owner Ron Nee, the owner of Landscaping Supply Company, to see why a valuation—well before your exit date—is so important.

Read More

The Importance of Shifting Core Duties Prior to Your Exit

To illustrate the importance of shifting core duties prior to your exit, let’s introduce Will Tryon, our hypothetical business owner of a thriving pre-cast manufacturing company. When Will began thinking about who he should transfer management responsibilities to and which responsibilities should be transferred first, he quickly became overwhelmed because the degree of responsibilities he held as the company’s owner were complex and ingrained in his everyday routine.

Read More

Creating Value in Your Business to Get Top Dollar When You Leave It

Did you ever wonder why one business has buyers lined up willing to pay top dollar while another sits on the market for months, or even years? What do buyers look for in a prospective business acquisition? There are many opinions about what attributes or characteristics buyers seek, but here’s what we know: the characteristics buyers seek must exist before the sale process even begins and it is your job as the owner to create value within your business prior to the sale. We call characteristics that impact value “Value Drivers.” Walk A Mile In A Buyer’s Shoes To get an idea of the importance of Value Drivers when preparing to sell your business, it is important to put on the buyer’s shoes for a minute. Let’s look at a hypothetical case study that illustrates how a buyer might compare two similar companies with a different emphasis on value drivers. The A Factor Company has EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $2 million, an owner who runs the business and the systems and processes that create growth. The A Factor Company doesn’t have a real management team in place and the owner generates a majority of its […]

Read More

Buy/ Sell Agreement Series: Part 3- Is Your Buy-Sell Agreement Current?

The business continuity agreement is the single most important document that the owners of a closely held business will ever sign. This agreement (also known as a buy-and-sell or buy-sell agreement) controls the transfer of ownership when certain events occur. These events include: the death or disability of a shareholder, an involuntary termination or retirement of a shareholder and even (yes they do happen) disputes among owners.

Read More

Random Quote

IF I don’t do my “mission” for which I was created, if I don’t fulfill my purpose in this world, then no one else will … so it’s left undone.