Helping Clients Enhance Business Value

Source: AICPA CPA Insider

The following includes excerpts, reproduced with permission, from an article by Heidi Bolger, CPA, ABV.

How many of us have had clients eagerly share the story of a business owner friend who sold his or her company for a “premium” price?

Recognizing that entire books have been written on this topic, your initial recommendations might include:

• Develop and execute a plan successfully to improve the financial position, earnings and cash flow of your business and sell at a time when your industry sector is at the peak of a business cycle.
• Sell to a synergistic buyer who can generate more revenue, save on expenses or sell off redundant assets by “folding in” your operations with their existing business.

How Sellers Can Impact Business Value

There are three primary methods that business appraisers use to assess value: (1) market approach, (2) asset approach, and (3) income approach. The income approach gives your clients the greatest ability to influence the value of their businesses.

Fundamental to this approach is business income or cash-flow. Anything your clients can do to positively influence these elements will clearly enhance value (as long as the positive changes are sustainable). In other words, creating a lean, mean operating structure and cranking up sales growth substantially should be the goal in the years leading up to a sale. Hitting the top of the growth curve on release of a new product or service would also create an “ideal” opportunity to position a sale.

Having “best ever” earnings/cash-flow and a high growth rate to plug into the valuation model will maximize the value conclusions for your client's business. Having depth of management, a healthy balance sheet and other favorable tangible and intangible factors specific to your client's business will also minimize the level of company-specific risk that is part of every multiple/capitalization rate used within the income approach.

[Editor's note: The article also provides advice on identifying qualified buyers.]

For the complete article, read “Maximizing the Value of Business at the Time of Succession.”

From AICPA CPA Insider, October 3, 2011, http://www.CPA2biz.com.