Tim Kinane


Posts Tagged "Business Exit Strategy"

Wednesday, September 11th, 2019

Your Last Five Years: How the Final 60 Months will Make or Break Your Exit Success


Webinar Last 5 years


Have you been telling yourself you want to exit from your business sometime within the next “five or so years” for a long time now?

What you do these final five years (60 months) will determine your exit success or failure.

This webinar explains how, and covers:

  • Immediate steps to take when you reach five years before exit
  • Biggest mistakes owners make, and how to avoid them
  • Checklist of things to not overlook


Register Now



Patrick Presentor

If you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.


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Monday, August 26th, 2019

Why Exit Planning is Like a Box of Chocolates

By: Patrick Ungashick

Box of Choc


Okay, okay, it seems like everybody has used the “like a box of chocolates” metaphor at some point. But in honor of the 25th anniversary of the movie Forrest Gump (yes, it’s been 25 years!) we are taking our turn. As the full saying goes, “Life is like a box of chocolates. You never know what you’re gonna get.” Planning and preparing for exit is like a box of chocolates in that you too will not know “what you’re gonna get” until you lift that lid and take your first bites. Some of the flavors and textures will pleasantly surprise you, and some you will find distasteful to put it politely. As the owner and leader of a successful company, you probably don’t like a lot of surprises, especially ones that leave you wanting to spit.

Most business owners will only exit once, and therefore have only one shot at success. Because of this, it is imperative to minimize surprises in the process, because anything that catches you off guard can increase stress, raise costs, and undermine or even block your exit success. As a box of chocolates is full of surprises, so too will be your exit. Listed below are ten common exit surprises, followed by a free educational resource on how to avoid each.

1.Your Company Might Not Be Worth What You Think It is

Determining the value of a company is difficult and subjective in nearly all situations. Too often, what you think it is worth will be significantly different from what a potential buyer thinks. Many business owners are unfamiliar with some of the key factors that drive business value and get surprised by what’s important to buyers, and what’s not. Click here to start with our educational articles on what you really need to know about business valuation.

2.If You Sell Your Company, You May Care More About Terms than Price

When exiting, it’s understandable to focus heavily on the total price your company may receive upon sale. However, you may get surprised to learn that terms will be just as important to you—and perhaps more important than price. Most commonly, how much cash is in the deal may matter and determine to whom you sell more than the total sale amount. Read here to understand why.

3.Legacy is So Powerful It Can Veto Price

Many exiting owners are surprised to discover late in the exit process that their legacy aspirations are just as important to them as their financial goals. In some cases, legacy is so important it vetoes price—meaning you might end up picking the buyer who did not offer the highest price but instead offered a good price plus a strong fit with your values. Many if not most owners are not fully in touch with the legacy goals they want to achieve at exit—start here to begin exploring this critical topic.

4.Exiting Changes Things at Home Way More than You Might Expect

Perhaps the biggest surprise for many owners occurs after you exit, and it happens at home. Exit often radically changes personal lives: family routines shift, social relationships develop, personal financial pictures are redrawn, and so on. Many owners and their spouses are caught off guard by these changes, which can be disorienting no matter how much you sold the company for. This free and previously recorded webinar helps prepare you for what to expect.

5.Reaching Financial Freedom Ain’t Easy

The number one goal for most owners at exit is to reach financial freedom—meaning working is a choice and not an economic necessity. Reaching financial freedom and staying financially free after exit is not easy, regardless of how large and valuable your company may be. First, you have to clear enough money at exit (after considerable costs and probably the largest tax bill you’ll ever pay), and second, you will have to manage and invest that money sufficiently well to replace all the income you enjoyed prior to exit. Many owners underestimate what is required here. To learn more, start with this helpful article.

6.Getting Ready for Exit Takes Way Longer than You Expect

This may be the most commonly encountered surprise on the list—preparing yourself, and your company for the future exit takes far longer than you expect. Typically, there are dozens of issues and projects (some large and some small) that need to be evaluated and addressed to prepare you and your organization for the actual exit event. With most of these issues and projects, you and your leadership team will have little to no experience because you’ve never exited before. All of this work must be done on top of running and growing your company—in essence, you will have two critically important jobs at the same time. To help, download this free ebook.

7.To Exit Successfully, Do Not Go Out on Top

Our society preaches “going out on top.” Yet to many owner’s surprises, this does not often apply at exit. It may be advantageous not to exit on top, but rather before the company reaches its next performance peak. Buyers want a company that has not peaked, but instead still offers a credible, sustainable upward growth trajectory. It is difficult to time this properly, and even more challenging to exit from a company in the middle of a profitable, fun, and exciting growth period. To better understand why, read here.

8.The Actual Process of Selling a Company is Full of Surprises

If you have never sold a company before, you will encounter unfamiliar and sometimes unwelcome surprises at multiple points along the way. You cannot afford to be unprepared, especially when your buyer is more experienced and knows how to use its knowledge against you. This article will help you minimize the surprises and lead you into the process less blind.

9.Your EBITDA May Not Be What You Think It Is

One could argue that your EBITDA, once properly adjusted, is the second most important number you need to know to exit successfully. However, many owners get the nasty surprise of realizing (sometimes late in the process) that their EBITDA is misstated or adjusted incorrectly. This concise article explains why so that you are not caught off guard.

10.Exit Impacts Everything

Often, when owners first start to think about exit, they immediately consider the financial aspects and opportunities. Then, frequently thoughts turn to key people and ideas for what one might do next in life. Those are just some of the issues and people exit impacts. In fact, your exit will affect or change nearly every aspect of your business and personal life. Start your exit planning here to avoid getting surprised by any overlooked item.

Exiting successfully is too important to leave things to chance, or to risk biting into some revolting coconut-boysenberry nougat chocolate morsel. Take the time to be prepared and work with advisors who have helped other owners exit successfully.


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

Wednesday, August 21st, 2019

Corporate Divorce: How to Avoid a Partnership Split, but What to Do If You Must Get One


Navix Webinar


About this Webinar

Corporate Divorce: How to Avoid a Partnership Split, but What to Do If You Must Get One

Webinar presenters 2019 8 27

August 27, 2019 2:00 pm Eastern


In this special educational webinar, NAVIX CEO Patrick Ungashick welcomes special guest William Piercy, an attorney with Berman Fink Van Horn who specializes in helping business owners end bad business relationships, and move on to better ones. Bill and Patrick will discuss why and how business partnerships potentially fail, and what all business partners should do to minimize the risk of a partnership failure. Bill will also present important steps to take if a business partner believes he or she needs to dissolve the business relationship.


Monday, August 19th, 2019

Seven Requirements to Pull Off a Family Business Exit

By: Patrick Ungashick

Fam Biz


If your exit strategy is to pass your business down to a member of your family, you face a unique set of issues, different from business owners who plan on selling their company when they exit. Woven into these issues are family dynamics, relationships, and realities which can at the very least complicate matters, and at worst prevent a successful exit. In our experience, there are seven conditions that you must address to successfully and happily pass a business down to the next generation. Reviewing these conditions helps you evaluate how prepared you are to pass your business down to family.

1st Condition: The Company Must Run without You

If you intend to pass your business down to your children and have the business not just survive the transition but thrive going forward, then the company must be able to run without you. There are two sides to “running without you.” The first deals with processes: all the company’s essential day-to-day operations including sales (from lead generation through closing), delivery of products/services, finance, problem-solving, etc. must operate effectively without your involvement. The second aspect deals with people: all critical internal and external relationships must conduct without your involvement and presence. If the company’s important processes or people relationships cannot function without you, then you cannot pass it down to your children without risking disaster.

Creating a company that runs without you is not easy. Building a team of sufficient caliber to run and grow the company without you takes years of planning and work.

2nd Condition: Your Child (or Children) Can Run the Company

Because the first condition is that the company must be able to run without you, the second condition must be that your child (or children) can run the company. It’s not enough to have hard-working, smart, mature children just working in your family business. One or more of them must have the talent, vision, and drive to lead the company today and into the foreseeable future. Finding successor leadership of this caliber is hard anywhere—finding or developing the leadership of this caliber within your family can be even more challenging. Also, it is important that your exit and succession planning build time into the process to let your children demonstrate that they can run the company before fully turning it over to them. They will need the opportunity to prove to you, other employees, customers, lenders, etc. that they have earned the future leadership role, rather than received it due to nepotism. (See the 5th Condition below.)

3rd Condition: Your Children are Prepared for the Risks of Ownership

Your children must be more than just qualified and proven to run the company; they also must be prepared for the risks that come with owning the company. Business ownership carries inherent risks, and in many family businesses, the successor children are unfamiliar with these risks and have never had to shoulder their responsibilities. For example, if you personally guarantee the company’s line of credit or other financial obligations, your children may be unfamiliar with this obligation and lack sufficient personal wealth to meet current and future credit requirements. Your children also may have never experienced owning the company through difficult economic times, such as a recession or industry downturn. It is not possible to protect your children from every business risk, but the key question is, are they prepared to handle the risks that you know come with ownership.

4th Condition: The Rest of the Family Supports the Succession

One of the great challenges within most family-owned and led companies is getting all the necessary family members on the same page while avoiding decisions or actions that cause dissention and strife. When it comes to passing a business down to the next generation of family leaders, preventing dissention often gets much harder, as most if not all family members are impacted in some manner by this event. For example, if you have some children working in the company but some who are not, then treating all your children fairlymay be difficult if only some children are going to “get” the business while others won’t. These issues can be emotional and sensitive within the most tight-knit, close families. Add into the picture complicating factors like second marriages or adult-age children who are not acting like adults, and fulfill every family member’s wants, and needs may seem impossible. Again, the sooner family-led companies start talking about and addressing these issues, the more time they give themselves to achieve a successful outcome.

5th Condition: The Rest of the Company Supports the Succession

To pass a business down to your children, your family must ultimately support the exit and succession plan, and the rest of the company’s key leaders must support it too. To the extent, you have addressed the 2nd and 3rd conditions described above, likely you will secure the support from the company’s non-family key employees because they will have seen your children effectively running the company and qualified to be owners. However, if you have co-owners (business partners) outside of your nuclear family, gaining their support may be more complicated no matter how qualified your children may be. Typically, your partners will not want to see the business that they own a portion of being passed down to your kids, either because they want their children (if applicable) to have the ownership opportunity, or because they want to sell the company for an attractive price. In these situations, the simplest solutions (share the company between everybody’s kids, or buy out the other owners) are rarely simple to implement.

6th Condition: You Can Reach Financial Freedom without Over Burdening the Company

Most business owners are financially dependent on the company. To some degree, you need your income from the company to support your current lifestyle, and one day you will need to convert some to all of your business wealth into personal wealth to reach financial freedom and retire. You can’t happily and successfully exit and pass your company to your children if that cuts you off from your financial security.

Owners who exit by way of selling their company to an outside buyer have an apparent mechanism for how they will reach financial freedom—the liquidity event created with the company sale. However, if you intend to pass the company to your children, there usually will not be a liquidity event. Alternative mechanisms, such as the company/kids borrowing money to buy you out, or the company keeping you on the payroll indefinitely, can help you reach financial freedom but they create significant long-term financial burdens (and sometimes tax problems) for the company. Ideally, family members will recognize and start addressing this issue long before the current owner(s) want to exit and adopt tax-favorable strategies to build wealth outside the company long before you are ready to exit.

7th Condition: You Have a Plan for Dealing with the Taxes

Passing a business to your children triggers potential transfer taxes—commonly gift taxes (if the transfers occur while living) and estate taxes (if the transfers occur at death). A high tax bill can cripple even the soundest succession plan. Recent tax law changes provide some tax relief, but only through 2025. After that year, the potential taxes owed on asset transfers are scheduled to return to significantly higher levels. You must consult your tax advisors to determine your situation, and if you need to consider taking action as part of your overall exit plan.

Your Last Five Years

Preparing and implementing an effective plan to pass a company from one generation to the next requires a thorough review of the company and the family, followed by discussions, brainstorming, modeling, and assistance from experienced advisors. In other words, exit planning takes time and work. If you are telling yourself you want to exit sometime in the next five years, now is the time to take action to address these seven conditions in your family business. For help, download our complimentary ebook Your Last Five Years: How the Final 60 Months Will Make or Break Your Exit Success to get started.


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, August 5th, 2019

Seven Reasons Why Selling Just a Piece of Your Company Might Make Sense

By: Patrick Ungashick


Business owners often think about exit as an all-or-nothing event. For example, “Should I sell my company?” is a more commonly asked question than “How much of my company should I sell?” Yet in many situations selling only some of your business can achieve many of your exit goals, while leaving you owning a portion (and perhaps even a controlling portion) of your business. Here’s how.

The Basics of Partial Company Sale

Selling less than 100% of your company to an outside buyer/investor is usually called a private recapitalization, or recap for short. Any amount can be sold, and private recaps occur where the buyer acquires anywhere from 10% to 90% of the target company. A critical question is whether the buyer acquires a controlling interest in the company, meaning, of course, more than 50% of the voting stock. However, buyers who acquire less than 50% will still negotiate into the deal-specific ownership rights, called supermajority rights, that give them a direct say in strategic issues such as whether or not the entire company is to be sold. Therefore, whether or not you sell more than 50% largely impacts who is in charge of the day-to-day operations of the company.

Potential buyers include wealthy individuals, private equity groups (PEGs), family offices, and sometimes other companies that see a strategic fit with your business. Buyers will often use a combination of equity and debt when they purchase a portion of an operating company.

Advantages of Selling a Piece of Your Company

Business owners are often surprised by the powerful advantages that can come with a partial sale of their company. Listed below are the seven most common and relevant:

One: Get Cash and Reduce Personal Risk

Probably the number one benefit of a partial sale is it offers an opportunity to convert some (but not all) of your ownership into personal cash. Private recaps are often described as “taking some chips off the table” for this reason. Getting cash increases personal liquidity and diversifies one’s assets, which in turn reduces stress and risk! Partial sales additionally reduce personal financial risk by often removing personal guarantees on company debt.

Two: Keep a Portion of the Company for a Later Sale

Typically, the second most attractive benefit of a private recap is you maintain some ownership in the company to sell the rest of your ownership at a later date after the company has hopefully increased in value with continued growth. In this way, private recaps are often described as opportunities to “take a second bite of the apple.”

Three: Stay Involved with the Business…Or Not

Another powerful advantage is you can customize your involvement in the business after the partial sale. If you want to remain fully involved in the business’s leadership and management, you potentially can. Or, if you wish to scale back your participation to a purely strategic or advisory role, such as serving on the board of directors, that too is commonly done. It is even possible to completely step down from all involvement in the company management or leadership and become a “silent investor.” This benefit allows you to pursue any degree of involvement—as long as your buyer agrees with and supports the plan. Perhaps the most common scenario is selling a portion of the company but remaining involved with day-to-day leadership, especially if you intend to enjoy that second bite of the apple later in the future. (Watch our recent webinar called “Cash Out Without Walking Out” webinar to learn more.)

Four: Secure Different Outcomes for Different Owners

If you have business partners, a private recap can allow different owners to pursue and potentially achieve separate and seemingly incompatible individual goals. For example, perhaps one owner is older and seeks to sell some to all of his or her ownership, but another owner is younger, eager to stay involved, and wants to increase his or her ownership. A partial sale can potentially accommodate these differing goals, whereas a full company sale could not.

Five: Create an Equity Path for Top Employees

Another advantage of the partial sales is the ability to create an equity sharing plan for top employees who currently lack ownership. Within a partial company sale, an equity pool can be created to incentivize top employees.

Six: Gain a Powerful Partner

With any partial sale, a new business partner enters the picture—the person or organization who purchases the partial interest. Ideally, this partner brings skills, knowledge, resources, and opportunities that your company leverages into accelerated growth. In the best scenario, this new partner can revolutionize your company’s future: providing capital for expansion or acquisitions, opening doors to new markets, introducing cutting-edge technology, or injecting industry-leading leadership and experience. More modest benefits can include operating cost reductions and efficiency gains if the partner brings larger economies of scale or greater market credentials.

Seven: Achieve Your Exit Goals

A partial sale of the business can be a key tactic in exit planning to achieve your exit goals. If you are like most business owners, at exit you seek to reach financial freedom, exit on your terms, and leave the company in good hands. Whether you ultimately intend to sell the company to an outside buyer, sell to your management team, or give the business to your kids, a partial sale can secure your major goals.

Conclusion and Next Steps

Private recaps are not for every owner or every company. Buyers/investors look for consistently profitable companies that, offer strong growth potential, and have capable leadership. Another point to consider: a partial sale may receive a lower valuation multiple than might be achieved with a full sale, especially if the buyer is only acquiring a minority position. However, this potential disadvantage is offset with the opportunity to pocket some liquidity now and retain ownership for the full sale at a later date—hopefully at a higher total valuation after having grown the company to the next level.

Next time you find yourself asking, “Should I sell my company?” consider rephrasing that question to read “How much of my company should I sell?” Contact us to get help answering this critically important question.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, July 1st, 2019

What Game of Thrones Teaches Business Owners About Preparing for Exit


By: Patrick Ungashick

Thoughts from a Game of Throne fan…

Whether you were a die-hard fan of HBO’s Game of Thrones, or you never saw an episode, likely you are aware that the most popular fictional series in television history recently ended in a manner that left millions of fans disappointed. (I am one of those disappointed die-hard fans.) In one crucial way, the Game of Thrones (GOT) ending offers an important insight for business owners getting ready to exit. Here’s how.

To explain the connection between GOT and your business exit, you must understand how sharply fans disliked the program’s ending compared to the entirety of the show. GOT consisted of 73 total episodes that aired over eight seasons. IMDB.com, a leading website for rating movies and television series, ranks the overall GOT program a lofty 9.4 out of 10. A quick review of the individual episode rankings reveals that episodes aired during the first seven seasons earned IMDB scores between 8.5 and 9.5, and several episodes even received a nearly impossible score of 9.9. However, during the eighth and final season, the scores fell dramatically. The highest rated episode from the final season received a pedestrian 7.9. The show’s climactic finale was the absolute all-time lowest scoring GOT episode, bottoming out with a dismal 4.2. How and why the show lost its way is not essential for our purposes. What is relevant is that after seven seasons of record-setting viewership and heaps of critical acclaim, at the very end the show blew it.

At this point, nobody knows how history will treat GOT. Years from now it may be regarded as one of television’s all-time great productions. But, what seems clear is there will always be an asterisk next to its name—a notation that despite all the show’s greatness, what happened (or did not happen) at the end tarnished its unparalleled accomplishments.

This is the lesson for business owners. What you do (or fail to do) at your exit will impact your company and personal legacy to a disproportionately large degree. In GOT’s case, the final few episodes overshadowed nearly ten prior years of artistic and narrative greatness. In your company’s case, if at the very end, your exit somehow fails or falls short, it may cast a dark cloud over your company’s previous years or decades of accomplishments.

An owner’s exit impacts practically every area of one’s business and personal life. Consequently, you cannot afford to have your exit be anything less than a big hit. Consider the following three examples of how a disappointing exit can have a disproportionately large negative impact on you and/or your company:

1.Failing to Reach Financial Security

Likely your hard work and business success have created for you a desirable standard of living that has benefited you and your family for many years. You also likely seek to preserve your financial security for you and your family for the rest of your life after you exit. However, if you fall short of achieving your personal financial goals at exit, you may quickly find yourself deeply disappointed and having to worry about money, perhaps for the rest of your life.

2.Employees are Treated Unfairly

Most business owners are deservedly proud of the careers and jobs they have created for their employees and strive to treat their people fairly. If, after years or decades of providing a stable and respectful workplace, your exit causes valued employees to lose their jobs unexpectedly, or thrusts employees into hostile work culture, that can quickly sour how people feel about your company even after years or decades of good relationships with employees.

3.Customers Left Unhappy

Businesses growth starts by taking care of the customer, and likely your company has done this well for years or decades. But if after you exit customers experience a noticeable decline in the quality of what your company provides, that too can quickly and perhaps permanently taint a previously sterling business brand and reputation. Few business owners will be happy after they exit if they realize that when they left the company, the company’s positive reputation rapidly turned sour.

The End Zone

My first book, Dance in the End Zone, opens with a quote from Elmo Wright, the former professional football wide receiver who is credited with inventing the end zone dance. After his career, Mr. Wright accurately observed: “I’ve accomplished a lot in my life, but what happened in the end zone is what defines my career.” This statement was true for Mr. Wright, and have been reaffirmed by what happened with HBO’s Game of Thrones. It will also define you and your company when you exit. Therefore, it is imperative that business owners start planning their exit as early as possible because what you do in the end zone will define your career, legacy, and post-exit happiness.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, June 24th, 2019

The One Scientific Reason Many Business Owners Do Not Exit Happily

By: Patrick Ungashick


Have you ever attended a presentation where the speaker asked audience members to raise their hands if they believed themselves to be an above-average driver? Typically, about 95% of the people in the room raise their hands. This would be impossible, unless the room was full of Formula One and NASCAR drivers. In a room full of randomly selected adults, 95% cannot be above-average drivers. There is a scientific explanation for what is happening, and it offers critical insight for business owners hoping to exit happily one day in the future. Here’s why.

The scientific principle at work is most commonly called illusory superiority, and most of us suffer from it at one time or another. Illusory superiority is a cognitive bias wherein a person overestimates his or her abilities and qualities relative to others. Several psychological experiments have revealed illusory superiority in action. For instance, in a 1977 study, a whopping 94% of professors rated themselves above average relative to their peers. Other studies have shown people tend to overestimate how charitable they will be, or of course their driving skills. Interestingly, illusory superiority seems to be rooted in North American culture—in many Asian societies; the phenomenon does not exist.

The illusory theory also applies to business owners contemplating exit. Most business owners know that the exit process is typically stressful and difficult and that a significant number of owners fail to exit when they want, how they want, and for the value that they want. But, most owners also seem to feel that they are unlikely to suffer any of the obstacles or setbacks that commonly plague others. In exit planning and our experience, most owners overestimate their readiness to exit and underestimate the challenges they will face. This behavior is illusory theory in action.

Psychologists who study illusory theory offer explanations as to why it occurs, which can help business owners better approach exit. A leading cause for illusory behavior is that “soft skills” like driving, lack rigorous mechanisms to measure and verify one’s competency, allowing us to assume that we are more qualified and prepared than we might actually be. That’s why people over-estimate their driving skills but are unlikely to over-estimate harder skills such as playing golf or piloting a plane, where one’s competence or preparedness are unequivocally revealed.

When getting ready for exit it is easy to assume that you are sufficiently ready and prepared, particularly if you have never exited from a company before. This assumption leads to underestimating the work that needs to be done and the time required to do it—arguably the biggest mistake owners make. Most owners lack tools and mechanisms to objectively evaluate how ready they and their company are to exit, and how likely they will achieve their exit goals. This too is the illusory theory in action.

If you are like most owners, you have too much at risk at exit to assume you are adequately prepared. Consider the following steps and resources to have a better plan:


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, June 3rd, 2019

Why an Investment Banker is Like a Wedding Coordinator, and an Exit Planner is Like a Minister


By: Patrick Ungashick

There once was a man engaged to be married. He had never married before, but he had seen what a happy marriage could do for people, and unfortunately, he also had seen what an unhappy marriage could do to people.

The man hoped his marriage to his future spouse would be happy and successful. So, he committed to working with a minister experienced in preparing people for marriage. The minister helped people know, anticipate, and address the issues and challenges that often come with marriage. The minister got to know the man, assessed the man’s readiness for marriage, and then gave feedback and advice to help the man enter into a happy and long marriage.

The man also wanted to share the wonderful moment of his marriage with the people closest to him and his future spouse. So, he committed to working with a wedding coordinator. The wedding coordinator designed a wedding event that would share the couple’s joy and happiness with all of the people whom they cared about, and would run smoothly without stress or unwelcome surprises.

Eventually, the man married. He and his spouse had a wonderful wedding, thanks at least in part to the wedding coordinator. And they lived happily married ever after, thanks at least in part to the minister.

This simple parable can help explain the difference between an exit planner and an investment banker, which is a common question we hear from owners who intend to sell their company. It’s an understandable question, for in many ways an exit planner helps prepare the company for sale, a sale that the investment banker is charged with making happen. But there are key differences between exit planning and investment banking, which is why it is important to think about these two roles separately. In some cases, it can make sense to work with the same firm or team to fulfill both roles, but in other cases, it’s beneficial to work with separate teams.

The man (or woman) seeking to marry is like a business owner seeking to exit, in this case, by selling his company one day. Just as the man has never married before, but he has seen good and bad marriages, the business owner has never exited before, but is aware that some exits are happy, but many are not. Exit, like marriage, changes one’s life in many ways. Being unprepared for exit can lead to significant struggles, just as being unready for marriage.

The minister (or priest, rabbi, counselor, etc.) is like an exit planner. Just as the minister is concerned with the individual’s overall best interests and happiness, so too is the exit planner. The exit planner’s mandate is to help the owner achieve his or her overall exit goals, which often includes: reaching personal financial freedom, leaving the company in good hands, exiting on his/her own terms, and having a sound plan for what to do next in life after exit. To be effective, the exit planner must get to know the owner and the company, and then advise the owner on the best plan and course of action, which may include—depending on the owner’s goals—selling the company. However, at all times, the exit planner must remain objective and committed to achieving what is best for the business owner.

The wedding coordinator is like an investment broker (or business broker, M&A advisor, etc.). Just as the wedding coordinator is focused on a singular event and outcome—the wedding day, the investment banker is focused on a singular event and outcome—the sale of the business. To be effective, the investment banker must be dedicated to the difficult and sometimes fragile process of selling the company. Selling a company is never guaranteed, not to mention selling for an attractive price and favorable terms. Just as the wedding coordinator seeks to make sure everything goes off smoothly with no critical detail unaddressed, so too the investment banker must carefully choreograph the process to minimize factors or risks that can hinder or even block the company sale.

When working for the business owner who wants to sell his or her company, a close and synergistic working relationship typically exists between the exit planner and the investment banker. The exit planner, typically engaged three to five years prior to exit, can help the business owner identify and implement tactics that will increase company value at sale and reduce risk. This tees up the company for the investment banker, who typically comes into the picture about a year before the final sale.

However, note that the two professionals, while serving the same client, do not share the same focus. The exit planner, like the minister, is focused on the business owner’s overall goals and best interests. The investment banker, like the wedding coordinator, is focused on the sale process and closing. Ideally, these two elements remain in alignment, meaning that selling the company (what the investment banker wants) is in the best interests of the business owner (what the exit planner wants). However, things can happen that bring into question whether selling the company is in the owner’s best interests at that time. Common examples include:

  • The offer(s) to purchase the company is for a lesser amount that the owner needs or wants
  • The offer(s) to purchase the company include terms and/or conditions the owner finds unfavorable
  • The offer(s) to purchase the company come from a potential buyer(s) that the owner feels is not a good culture fit
  • The business owner comes to realize that he or she is not personally ready to sell the company at that time, often because the owner is unsure about what he or she would do without the business
  • The business owner grows unsure about selling the company to an outside buyer and instead seeks either an inside sale or passing the company to the next family generation

Should any of these occur, the investment banker and exit planner may find themselves working toward different outcomes. This benefits nobody, especially the owner. Experienced exit planning and investment banking advisors know these issues and seek to minimize the likelihood that these situations occur. In all cases, business owners and their advisors need to remain clear through the entire process what role every advisor is playing.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Tuesday, May 28th, 2019

Business Valuations: How to Select a Business Valuation Professional


Change money


By: Patrick Ungashick

Business Valuations & Exit Planning: A Business Owner’s Guide

This is part four of a four-part series on business valuations, written for business owners who need to understand how business valuations are used in the process of preparing for your business exit. As this series deals with tax and legal subject matters, readers are advised to consult their tax and legal advisors. This material is for educational use only. 

How to Select a Business Valuation Professional

There is no such thing as a completely objective business valuation. Every business valuation involves some degree of judgment, which means subjectivity. A human being who values a company has countless decisions and judgment calls he or she must make during the valuation process: which valuation methods to use, what data to include or exclude, how to factor in non-quantifiable issues such as risks, opportunities, market conditions, and more. Even if you are using a software program to do a valuation, subjectivity is introduced by the judgment calls made by the person(s) who programmed the application, and again by the person entering the data. Therefore, if you need a business valuation a critically important question becomes who do you use to do the work?

There is an additional reason to carefully consider who should perform your business valuation. Getting a business valuation is like buying an insurance policy—that valuation may be called up to help protect you against claims against your interests from unfriendly parties, such as a disgruntled business partner, a divorcing spouse’s lawyers, or perhaps even the IRS. Not all business valuations are created equal. The quality of the valuation, and the party who performed it determines how durable that “insurance policy” will be if called upon.

Unfortunately, it’s never been more challenging to determine who you should use to get a business valuation. There are no formal college or university degrees in business valuations, and no state or federal licenses exist. Consequently, many professional advisors will say “Sure, we do business valuations” if asked. An online search turns up countless websites, programs, and calculators that offer low-cost or even free valuations. While free online valuation calculators may be fun to play with, they cannot provide the level of accuracy and assurance that comes with a valuation done by a qualified expert. So, when investigating who to turn to, consider the following:

Professional Experience

While no formal education or licensing requirements exist for business valuations, several organizations offer professional certifications in this field. Look to work with valuation professionals who have at least one of these credentials (listed in alphabetical order):

  • Accredited in Business Valuation (ABV). This designation is only to certified public accountants (CPAs) who have passed an exam and have met several thresholds of minimum valuation experience.
  • Accredited Senior Appraiser (ASA). To earn the ASA, an applicant must meet specific educational requirements, pass a comprehensive exam, submit their work product to a peer review process, and possess five years of full-time business valuation experience.
  • Certified Business Appraiser (CBA). Applicants must meet certain educational requirements, pass a comprehensive exam, and achieve either 10,000 hours of business valuation experience or complete 90 hours of advanced course work. As with the ASA, applicants must also undergo a thorough peer review process.
  • Certified Valuation Analyst (CVA). Like the ABV, this credential is only available to CPAs. Applicants must pass a comprehensive exam and complete required course work.

As of the time writing this article, only about 5,000 professionals in the US hold at least one of these credentials. The good news is once you know what to look for, it is not difficult to find them.

How to Find Your Valuation Professional

Should you need a formal business valuation, consider the following steps:

  • Ask your existing trusted advisors to refer you to valuation professionals that they know, and hopefully have worked with in prior situations. As a backup method, research online valuation professionals in your area and/or who have experience in your industry.
  • Meet or speak with several candidate professionals, share your situation, and ask them how they would approach your needs.
  • After initial discussions, ask for a written proposal including a fee schedule and project timeline. Be sure you understand the information and work required of you during the valuation process.
  • Once you have selected the valuation professional whom you prefer to work with, have your lawyer review their service contract or agreement. It should contain clear and favorable language about how this professional will respond if called upon to defend their valuation in court, arbitration, or in front of a regulatory agency.

Be sure to review the previous articles in this series (if you have not already) to learn when you might need a valuation, how the valuation process works, and to understand the more common valuation methods. Valuations play an essential role in many business owner’s exit planning process—it pays to know the basics of how they work.

Your Next Steps

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If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, May 13th, 2019

Business Valuations: How to Value a Business

Valuation binder

By: Patrick Ungashick

Business Valuations & Exit Planning: A Business Owner’s Guide

This is part two of a four-part series on business valuations, written for business owners who need to understand how business valuations are used in the process of preparing for your business exit. As this series deals with tax and legal subject matters, readers are advised to consult their tax and legal advisors. This material is for educational use only.

How to Value a Business

To understand business valuations and how they work, it is helpful to understand the general process most valuation professionals (appraisers) use. The process is more involved and collaborative than many business owners expect. To perform a valuation, appraisers usually do not simply gather financial reports, input numbers into a spreadsheet, and then spit out a figure. You the owner, your company management (especially your CFO and/or controller), and your advisors will work closely with the valuation professional at key steps. The general approach consists of:

Getting a Business Valuation Step 1: Define Your Goals

You and the valuation professional start by discussing the project and defining your objectives and purpose for the valuation. For example, why are you commissioning this valuation? Your purpose will guide the process and, may influence the appraiser’s analysis and conclusions where appropriate. For example, are you seeking the valuation for tax planning purposes? Or are you preparing the valuation pursuant to a pending event such as a marital divorce or business partner buy-out? It is imperative that you and the valuation professional understand your goals. The appraiser’s goal then should be to ultimately, deliver to you a comprehensive and defensible business valuation.

(Note: You may have specific assets such as real estate, equipment, or intellectual property held within your company, or owned in another entity and leased back to your company. Depending on your situation the appraiser may need to review these assets as part of the valuation process, and determine a distinct value for them separate from the company’s value.)

Getting a Business Valuation Step 2: Gather Data

Typically, the valuation professional then provides you and the involved members of your leadership and advisory team with a list of required financial reports and information, usually going back three full years. Commonly the appraiser will want to see income statements and balance sheets, but they may ask for additional detailed financial and tax reports. They likely will also ask for non-financial information such as the company organizational chart, business plan, budget, and any industry data or reports you can provide.

The valuation professional will then study and review the information, using questionnaires and templates they have developed for this purpose. They will subsequently meet with you and the company management to ask additional questions to clarify and deepen their understanding of the company, including its strengths, risks, market, and direction. The better the valuation professional understands the financial and operational aspects of your company, the better prepared they are to achieve your valuation objectives and support their valuation conclusions.

It is critically important that your company’s financial reports and records be current, accurate, and formatted consistent with industry norms and expectations. Otherwise, the valuation exercise could end up becoming a garbage-in-garbage-out exercise. The valuation professional may need to make financial adjustments to account for owner benefits, perks, and non-recurring expenses (commonly called add-backs) as well as understand any intangible assets not fully reflected on the balance sheet. The appraiser must also ask about operational and industry risk factors that can substantiate higher or lower valuations. The valuation professional will also ask for projections of the company’s anticipated future financial performance, commonly called pro-forma financial statements. If you and your management team do not currently prepare projections, the appraiser may assist you in doing so if relevant and advantageous.

As you can see, it’s a collaborative process with a lot of back and forth discussion and exchange of information. This presents the opportunity for you and your management team to give the valuation professional your perspective on the company’s strengths, opportunities, risks, and threats.

Getting a Business Valuation Step 3: Further Research and Analysis

From there, your valuation professional now has plenty of data to analyze from these documents and discussions with you and your leadership team. They may need to recast your historical financial statements, which are often prepared with an eye toward tax minimization and may need to be normalized for business valuation purposes. Additionally, the appraiser may need to research external factors such as economic conditions, industry trends, and comparable transactions within your industry. At each step of the way, if the valuation professional has additional questions, he or she likely will be asking you for further information. In some cases, the valuation professional may need data from your other advisors, such as your accountants.

Getting a Business Valuation Step 4: Preliminary Valuation Findings

While different valuation professionals follow different processes, at this point many will now circle back with you and your team to present preliminary findings. Before issuing a final report, the valuation professional may share their initial thoughts and reasoning, in order to gather your reaction and get additional input from you. What will be significant at this point is not just the preliminary valuation, but just as importantly you need to know how the appraiser got to this preliminary valuation amount. This is the time for you and your team to offer additional input to help the appraiser substantiate a higher or lower valuation, if appropriate.

Getting a Business Valuation Step 5: Final Report

Last, the valuation professional now issues a final report. The reports consist of far more than just the bottom-line number, although understandably that’s what you will initially focus on. Valuation reports should cover an analysis of the company’s risk factors, a detailed description of the company and its market position, and a review and assessment of the prevailing economic conditions and industry trends. Recast financial statements and projections should be included in the report. Then, the valuation professional should clearly state what assessment methods they used to determine their conclusion, and why.

Most appraisers will sit down with you, and relevant members of your management and advisory team, to go through the final report. They should explain all the key points and answer your questions.

Getting a Business Valuation: An Important Tip

There is one important tip to consider if you believe you might need a formal business valuation. Contact your attorney and ask him or her about commissioning the valuation study on your behalf. In other words, you pay your attorney the fee for the valuation and, then your attorney hires the valuation professional for you. The potential advantage this creates is, if done properly, the valuation results will come to your attorney and then may be covered by attorney-client confidentiality. This may be important for protecting your interests. For example, suppose your purpose for getting valuation was tax planning related and you were expecting (or hoping for) a low valuation, but the number came in higher than desired. With the valuation covered by privilege, you and your attorney can safely and confidentially discuss the findings and determine your next steps, including potentially trying another appraiser. Or, the reverse scenario could be true. You could have commissioned the valuation hoping for a high number (perhaps if you are expecting to be bought out by a business partner), but what if the valuation comes in lower than desired? Again, having attorney-client confidentiality may preserve options for you. As with all legal and tax issues, discuss this with your advisors.

Your Next Steps

Click to register to receive subsequent articles in this series.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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