|Home | About the Firm | Practice Areas | Resources | Contact|
The Corporate and Tax Counselor — Practical Counsel for Business
The Corporate and Tax Counselor is a monthly e-newsletter providing business owners and executives updates and PRACTICAL COUNSEL related to current business and tax law happenings.
In each issue, we will highlight bottom-line implications and/or opportunities business owners/executives should consider in response to new laws, court and agency decisions, and other matters discussed in the newsletter.
What is My Company Worth?
You must be wondering this. Let me tell you a story:
One day, Susan and Mitchell got a call from a broker representing a large company trying to acquire companies in the closet design industry. They had been in business for 25 years with revenues growing each year, especially after they landed a Big Box Contract for closet remodels! In fact, they had grown from $5 million to $25 million in just 3 years! Susan and Mitchell were overwhelmed at Sumit Design’s size and complexity. They had never planned for this – so when an offer came they jumped at it.
The initial offer was a home run! The buyer offered 1x revenue to buy the company and Sumit Design signed a letter of intent. $25 million meant Susan and Mitchell could sell, walk away, buy the boat they’d dreamed about, put the kids through college and head off on adventures.
The Deal Never Closed.
Why? Because Sumit Design did not survive the Buyer’s Due Diligence Review–their HR Policies were a disaster waiting to happen, they had 1099 contractors that should have been W-2 employees, none of the key employees would sign agreements to stay (none wanted to work for a different owner), they were using pirated software because their “IT Person” thought it was cheaper, and the financial books were a mess. Oh, and that Big Box Contract? It was 70% of their revenue and had a 30 day cancellation notice–PLUS, the Big Box was going to require the Buyer to rebid the work–and that meant revenue was going down↘. All of that growth had come with a price and now Susan and Mitchell had to pay it.
Risk Went Up, Price Went Down!
Each time the Buyer sent a specialist in to review Sumit Design, they left with serious questions. Susan and Mitchell decided not to sell because the final offer was equal to one year’s income for them.
But, Susan and Mitchell knew that they could not continue operating Sumit Design without making changes and they recognized that they needed to make changes.
Sumit Design was determined to operate on process and systems not heroic efforts of employees. With strategic planning and a vision of what was possible, Susan and Mitchell:
- Established proper employment hiring and onboarding systems to train for safer operations.
- Got cleared up on all state sales and use taxes.
- Created the director of sales to grow other channels of business and lower the risk of losing the Big Box Contract.
- Outsourced their entire accounting department using automation and cloud systems to eliminate risk of embezzlement and give them clean, clear accurate and real-time financial information.
- Brought in a professional manager and made her the CEO.
- Signed key employees to contracts that include non-competes and incentives to grow.
Susan and Mitchell were now working on the business, not in it. A few years later they bought that boat and the kids finished college with zero debt! Instead of selling they now own a business and can transfer it to their children.
How? Because proper planning and effective execution can turn the company from a grind to a well-oiled machine. Business success is not random it requires leadership, focus, discipline and a worthy goal.
So what’s your business worth?
You should determine that! Plan now to increase and defend the value of your business. Decide how much you want or need to sell the business and then build a business with that value.
What Drives Value?
Here are just a few items to consider:
- Quality of Revenues (diversified – recurring)
- Financial Performance (Gross Margin is the key – Topline Revenue is Vanity)
- A Strong Balance Sheet (Run the Business as a slave to you not the other way around)
- Management Team’s Depth and Experience (Build this, keep this)
- Quality of Assets (tangible and intangible)
- Intellectual Property (probably have more than you think – see #7 and #9 below)
- Proprietary Information and Processes (competitive advantage)
- Growth History and Potential (business / market)
- Quality and Uniqueness of People, Products, & Services (this is intellectual capital)
- Favorable Economic & Industry Conditions (be ready, don’t try to time it – plan it, pursue it)
General Counsel P.C. has the expertise, skill and–the real key– unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).
Call us for a free consultation.
See your future. Plan your future. Attain your future.
General Counsel, P.C. – Every Business Needs a General Counsel: General Counsel’s Business and Tax Practice Group has over 60 years of professional experience in counseling business owners on all aspects of business and tax matters. Our attorneys have extensive experience representing a wide range of local, regional, and national companies and business ventures. If we can be of any assistance, please contact, Rich Trimber, Norman L. Eule or Merritt J. Green, Founder and General Counsel, P.C.’s Managing Partner.