What makes your company Marketable? Part 2 of 2Chia-Li Chien, Ph.D., CFP®, PMP®, CPBC
Chia-Li Chien | Jan. 23, 2014
Keep focused on value and your transfer goals.
As we discussed previously, many of my clients receive calls and inquiries from would-be investors on a weekly basis and are often approached with interesting business and financial propositions. For any business owner, these calls can become confusing. The next “shiny thing” can be very alluring. Or, they suffer from FOMO—fear of missing out.
In part, this is because owners often believe that 3rd party buying is the only option and the only way to sell the business and maximize their profit. In fact, there are two major channels: Internal and External.
|Internal channels would include transfers to:||External channels would include:|
|• Partners/ Co-owners|
• Family members
• Charitable trusts
|• Retirement/Leaving the business|
• Public offerings
The viability of all these channels helps to determine your company’s marketability.
The truth is that owners get into conversations that intrigue them. Unsolicited calls from outside investors, all offering to pump in capital while the owner’s transfer plan is actually internal can create chaos in the owner’s mind. He or she may be trying to create incentive plans for employees, family, etc., and in working toward that internal transfer, someone wants to drop in the capital that could make that happen…
Be really, really careful.
Have a clear understanding of what you want. With proper planning and strategy, your transfer channels could be external and internal at the same time, maximizing the value of the company.
It might be a good idea to have someone to direct those calls and offers to, who can help you stay on track, unemotional and focused. Business owners often lean toward the person who approaches them first or the latest and greatest offer. The owner may create an external market force without meaning to, and get stuck, or vice-versa.
Ask a professional to guide you in understanding each transfer channel and your viable options. And remember, that professional is not a downstream advisor such as an accountant or attorney. They will only look at a transfer from their own professional points of view—how it looks on the books and if it is legal in this case. You need a professional business transfer advisor, such as our team at Value Growth Institute.
We can help you be aware of the consequences of increasing or changing your marketability while always keeping in mind getting the maximum value from your business.
Surround yourself with right advisors so that you’ll understand the complexity of marketability and transfer channels.
For example there is a business in my office complex that uses the term “succession planning” in their marketing materials. When I asked about the details of their “succession planning” services, they said, “Oh, that’s just for marketing and SEO.”
A recent client came to me willing to create an overall valuation plan. She has national investment bankers and an attorney ready to buy her business. I looked at her and asked why she returned to me after inquiring about my services 3 years ago. She said it was because she said she didn’t trust any of them, but wanted someone who could see the overall view and total structure in order to maximize her return.
We first needed to tweak her business model, and then look at the different channels that were not working. After that, we would assess her goals and business model to find the best marketability.
In considering your business marketability, remember these 3 key points:
- It’s most important that you have a viable business model so that when someone approaches you, you can judge whether or not the business can sustain and grow with the ideas/proposals brought to you.
- For each idea, offer, or proposal, ask yourself—does it return enough equity value?
- Try to look at your business situation differently. Do things need to change? If so, change the business model and not marketability.
It’s all too easy to get sidetracked from your business model and marketability goals and objectives. A friend of mine has a brand new start-up, and almost before he could launch, he had legitimate investment offers. But it wasn’t the right stage of the business or timing. However, don’t think for a moment that it wasn’t both flattering and intriguing.
So before you consider incentives, stock transfers, or interesting offers, please consult with a business value/succession specialist. Stay focused on maximizing your business value, your marketability, and the transfer goals and objectives you are working toward.