Understanding what your business is worth

The CEOs of publicly traded companies get immediate feedback each day as the stock ticker crawls across their computers. Shouldn't leaders of private companies want similar feedback? Maybe not daily, but a periodic check on business value will help business leaders make decisions that lead to business growth and profitability.

John Kerschen, Managing Director, The Charter Group, discussed the benefits of business valuation in his recent article in the Grand Rapids Business Journal. Below is an excerpt. Read the full article here.

"It's no surprise owners typically respond to a recommendation to have their business valued with some variation of "Why now? I'm not planning to leave for years," or "I built this company, so I know what it's worth."

Before you join these owners and scratch a business valuation off your list, consider four reasons you should understand what your business is worth:

1. Leading growth in business value is the owner/president's most important role.

2. A valuation provides owners (and employees) an objective basis for incentive plans.

3. It establishes your starting position and distance to the finish line.

4. It tests your exit objectives.

Eventually, all business owners will exit their business. For many, their business is the largest asset in the family estate. Owners need to understand if the value of their business is on track to meet their goals, and if not, how big is the gap. 

To understand the gap, you'll first need to answer the question, "How much will I need from the sale of my company to maintain the lifestyle I want for me and my family in retirement?" And second, "Is the business worth enough to support those needs?" Once you know these answers, you can successfully proceed down any exit path - internal or external.

For business transitions to family or current employees, value is often determined by how much the business can afford to pay the owner over time. A value needs to be determined so as not to put the business at risk, while also providing for the retirement of the departing owner.

In co-owned companies, on the other hand, unless owners periodically update value established for the buy-sell agreement, one owner may receive too much or too little upon death, disability or departure, while the other may pay too much or too little. Outdated valuations often result in litigation (and subsequent loss of business value) as the slighted owner goes to court.

All business leaders want to see their companies increase in value, and on some level, all owners recognize they will leave the business someday. While you may not yet have a vision for the next stage of life, wise business owners understand that they need to know where they stand now and where they are planning to go."

The Charter Group can help you determine the value of your business in today's market and economic environment. To learn more, contact us.

Is the time ripe for a sale of your business?

Like most things in life, when it comes to selling your business, timing is everything. When growing your business is your focus, you may feel you don't have time to look beyond day-to-day operations. But the time is ripe to consider how and when the sale of your business will optimize your return on investment.

John Kerschen, Managing Director, The Charter Group, shared his thoughts on timing in a recent article in the Grand Rapids Business Journal. Below is an excerpt. Read the full article here.

"For privately held business owners, the question of when to transition their business to family, the management team or to a third party, is a complex issue. Most owners will face this decision only once, and yet this one decision can have profound effects on the future wealth of the business owner, future generations of the family, the company employees and the business itself.

While each business must consider its own readiness, external market conditions such as interest rates and income tax rates can have a tremendous effect on the value an owner receives from a sale transaction:

  • Low tax rates: Tax rates remain at historically low rates. Given the mounting national debt, social program costs and aging population, there will be increasing pressure to raise rates before too long. 
  • Low interest rates: Near record low interest rates have acted to boost business values much in the same way low mortgage rates have helped to restore residential real estate values. With low interest rates being held down by aggressive Federal Reserve Bank action, rates will likely rise in coming months and years, leading to lower earnings, higher borrowing rates and eventually lower business values.  
  • A growing economy: The economy continues to grow at a projected 2.0% rate for 2013 and the S&P 500 stock index hit an all-time high in July of this year. It may not be the heydey of 2004 to 2007, but it is a pretty good time for many businesses.
  • Large pool of buyers: Recent economic stability, availability of low cost money and a relative absence of troubling world issues have brought out the buyers for small and mid-sized businesses. 

Numerous private equity and corporate acquirers are reporting virtual bidding wars that are causing a spike in the prices commanded by sellers of profitable, quality businesses. However, national transaction statistics show only modest increases in the number of completed in the lower middle market. Most buyers attribute this to a lack of available business sellers.

What better time to be a seller than when there are many buyers anxious to buy? Finding the perfect time to sell a business may never occur. But, it sure does help to enter the market when times are good. Such times don't last forever."

The Charter Group can help you determine what time is right for you. We'll assess the value of your business and other market or internal factors to help you decide if now is the best time to sell. Contact Us to learn more about how we can help.

An "economic bright spot" helps business owners shine

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The Charter Group is proud to have been recognized as a recipient of the2013 "Economic Bright Spots" award by Corp! magazine. The annual award honors companies that have grown significantly over the past year, and are a driving force in Michigan's economy and innovation. 

Helping business owners shine

The Charter Group has become an economic bright spot by supporting hundreds of business owners in Michigan, Indiana and throughout the Midwest in their quest to succeed. With our guidance, businesses have been able to expand via acquisition, raise capital to support growth, develop exit planning strategies to make their companies increasingly valuable, and maximize value in the sale of a business.

Buy, grow, or sell? It's all about the timing

During the recent economic downturn, many business owners found themselves with decreased revenues and profits, and were in no financial shape to sell for a positive return on investment. During this time, we focused on providing well-funded businesses with opportunities to expand into new markets or geographies. In the process, we established a system of partnering with clients to help them grow through ongoing, planned acquisitions.

As the economy continues to improve, business owners are now well positioned to achieve positive outcomes by utilizing our sell-side M&A, capital raise, business valuation and exit planning advisory services, as well.

Licensure key to protection

Many business owners may not realize that working with a securities licensed advisor is not a "should have" but a "must have," no matter which kind of sale transaction you are considering. If you're considering engaging an M&A advisor, make sure to ask about licensure.

The Charter Group has attained key securities registrations with the Financial Industry Regulatory Authority (FINRA), including the Series 7, 62, 63, 65, 79 and 82 licensures. These licensures reflect our commitment to providing high quality and professional M&A advisory services. The designations demonstrate our commitment to our clients in terms of reporting responsibilities and regulatory compliance.

What does the future hold for your business?

From an M&A perspective, the biggest challenge for business owners in the next year might come in the form of tax and regulatory changes. When a business owner is ready to pursue a business sale or acquisition, unforeseen changes can become a big obstacle to a successful transition.

To adapt for this, The Charter Group has proactively enhanced our exit planning tools and succession planning capabilities, so that our clients are prepared for whatever the changing environment and market presents. By leveraging our expertise along with these methods, our clients can anticipate and prepare for potential changes when the time comes for a business transition.

Whether you're ready to buy, grow, or sell your business, The Charter Group will skillfully guide you to what's next.

Preparing your business for your departure -- on your timetable

Whether or not you've decided when to exit, forming an exit plan now enables you to make your company increasingly valuable. It positions your business to carry on successfully without you, while ensuring you achieve the best return on your investment.We've all sympathized with the star athlete who refuses to retire. But eventually, an athlete's failure to perform will force his exit from the playing field.
 
The same is seldom true for business owners. Some owners find satisfaction in being active in their companies despite age and achievements and, often, despite enormous financial success. Should you leave your business just because your friends are retiring or you became entitled to Social Security years ago? Or should you continue on?
 
Owners should not be pushed to leave a business before they are ready. However, it is your responsibility, as leader of your business, to prepare it for the inevitable. After all, someday you will leave the business, even if they carry you out on your shield. Don't let a failure to plan prevent you from doing what you want, when you want.
 
Engaging in exit planning does not mean chiseling in stone a departure date from your business. You can continue to be as active as you wish for as long as you wish.
 
Exit planning means that you work, now, to make your company increasingly valuable --whether you plan to stay or leave. No matter your current departure intention, you must prepare your business for the day that your attitude or life circumstances change. One of the goals of exit planning is to position your business to carry on without you.
 
Consider just one facet of exit planning: strategic business planning. Ultimately, much of the value of your business is based the ability of others to replace you. If you are irreplaceable, then your business has little value to a third party and cannot be continued by insiders. For a business to have value in anyone's estimation, it must be able to thrive without you. To increase its value, your company should have:
  • Management apart from you (if business size warrants) that can fill your boots.  
  • Value drivers in place. These include developing operating systems that improve the sustainability of cash flow, diversifying your customer base, creating and continually refining your strategic business plan.
  • A business continuity plan to be certain the business continues if you do not.
Taking these steps prepares your business for your departure on your timetable. These steps can also make your business more valuable and sustainable whether you are there every minute, or not. Beginning your exit plan today can help to give you flexibility and peace of mind, no matter when, or even if, you plan to leave.
 
To get started building your exit plan, contact Andrew Williams, Vice President, Business and Transaction Management at awilliams@charter-group.com, 574.370.7376 or Jeanne Englehart, Vice President, Client Management at jenglehart@charter-group.com, 616.235.3555. Andrew and Jeanne lead our exit planning practice and look forward to sharing their expertise and helping you plan for a successful exit.

Finding the path to a successful exit

Sales to key employees, employee stock ownership plans, transfers to children, and sales to third parties can all be excellent exit strategies for business owners when it comes time to sell. But if you find yourself wondering which of these is right for you, you may be like the car buyer who asks if the Lincoln, Cadillac or Lexus is the best vehicle. There can be no right answer without more information about you and your specific needs and goals.

When a business owner asks questions like this out of the blue, it can indicate that his plan for exiting the business is adrift, or that his advisors lack experience in developing a coordinated approach to preparing for the future. They have not asked the questions necessary to start the owner on the path to a successful business exit.

In order to know which route is best, we need to understand what goals a business owner wants to achieve. It's our job to ask you the right questions, so that you are able to clarify your goals and develop an exit strategy that enables you to achieve them.

"The Charter Group can help you get started, whether you are planning to exit 5, 10, or 15 years from now. The important thing is to get your plan in place."

We recommend beginning your exit planning journey with two things: 1) a road map and 2) an experienced guide. The Charter Group can provide you with both. We serve business owners throughout the Midwest with comprehensive M&A, valuation and exit planning advisory services. We ask the right questions so that you know where you are going, who is going to help you get there, and the route you are going to take.

Who should be on your advisory team?
Your exit planning advisory team should consist of the following professionals:

  • M&A / Exit Planning Advisor
  • Attorney / Estate Planning
  • Tax Advisor / CPA
  • Financial Planner
  • Insurance Professional
  • Valuation Expert

Why should I have all of these advisors?
First, no one professional has all of the answers. The issues you face in exiting your company are complex and will require input from professionals in a number of disciplines. For example, an accountant skilled in exit planning brings a host of skills (especially tax minimizing techniques) to the process that your attorney may not possess and vice versa. In addition to being skilled in a particular practice area, each advisor should also be familiar with, and better yet, experienced in exit planning and should know how to work for you as a member of an advisory team.

Lawyers and CPAs are expensive. Won't this team cost me more money?
Assembling and meeting with your advisory team not only facilitates the exchange of information and ideas, but it can reduce your costs by increasing the efficiency of each advisor. Instead of your advisors proceeding in a disjointed and inefficient manner, have a single meeting with all advisors present to coordinate everyone's efforts.

How do I assemble my team?
Many business owners have worked with most of these professionals individually in the past. But no one advisor can guide you through this process alone. The Charter Group can help you assemble your team charged with a common goal: helping you to leave your business in style.

For 24 years and via 400+ successful transactions, The Charter Group has helped business owners optimize ROI throughout a business's most important transitions, from inception through growth and eventual sale. A leading M&A advisor, we specialize in transactions ranging from $10 million to $100 million. Whether you're ready to buy, grow, or sell your business, The Charter Group will skillfully guide you to what's next.

Increased Value Multiples Forecast for 2013

Business publication MiBiz asked the region's top executives to contribute to their Crystal Ball 2013 special edition highlighting "insights, economic sentiment, and forward-looking strategies from the region's business leaders." When asked to provide his take on the M&A industry, here's how John Kerschen, Managing Director, The Charter Group, replied:

"For the first time since the onset of the Great Recession, our national economy enters a new year with faint tailwinds instead of dramatic headwinds. The unemployment rate is finally below 8 percent, interest rates remain at historic lows, and assuming a fiscal cliff can be avoided, general sentiment has improved from 24 months ago - resulting in a positive outlook for the M&A industry.

In the last five years, business owners have been reluctant to sell for a number of reasons, including a valuation gap between expectations and true market value, slow recovery of operating results coming out of the recession, perceived lack of attractive public market investment prospects for the proceeds from a sale and a challenging credit environment as banks recovered from their own issues.

Additionally, larger corporate or strategic buyers were exceedingly conservative as they cut costs in an effort to survive the recession. However, over the past 12 months, strategic buyers have emerged leaner and with ample capital for acquisitions to compete with already hyper-aggressive financial buyers (private equity groups).

Today and for 2013, the result is a robust and seller-friendly market for well-performing businesses. As owners increasingly feel more comfortable about their businesses, we believe there will be a release of the pent-up supply of attractive and marketable businesses. Combined with the current high availability of cheap capital and high quantum of financial buyers, (that) should result in significantly increased deal flow and value multiples in 2013."

See the complete MiBiz Crystal Ball 2013 special edition at What keeps you up at night? Looking ahead to 2013.

For nearly 25 years, The Charter Group has helped business owners optimize ROI throughout a business's most important transitions, from inception through growth and eventual sale. A leading M&A advisor, we specialize in transactions ranging from $10 million to $100 million. Whether you're ready to buy, grow, or sell your business, The Charter Group will skillfully guide you to what's next.

Why private equity groups and investment bankers keep shaking your tree

As the national economy continues its recovery, many business owners find themselves inundated with letters and phone calls from private equity groups and investment bankers representing "buyers." They're basically shaking your tree to see what falls out.
 
The large amount of capital raised by equity groups in 2005-2007, combined with many corporate balance sheets flush with cash have created a unique circumstance in the market today - a lot of money chasing too few companies ready to sell. Following basic supply and demand principles, this is driving up multiples for sale transactions.
 
When professional buyers like private equity groups and investment bankers call you direct, they are hoping to avoid the involvement of an intermediary and thereby increase their odds of getting a "good deal" - from their perspective! Unfortunately, oftentimes that may not equate to an optimal deal for the business or you as the owner.
 
When you get this type of call, you and your existing team of business and financial advisors don't need to go it alone. Having an experienced M&A firm in your corner can provide you with the tools and information you need to determine if that Buyer is the best buyer for your business and to get the best deal for your business. The Charter Group maintains a focus on what's in it for your shareholders and ensuring that you achieve your transaction objectives.
  • Experience and internal tools to determine what your business is really worth in the current economy and state of your industry
  • Working "on point" to manage the business sale or acquisition process - keeping the work load and details of an emotional and difficult process off your plate; leaving you and your existing team free to concentrate on running the business and continuing to build value
  • A proven track record of bringing a 25-50% price premium via a correctly managed process

How an M&A advisor can improve your bottom line 

When a regional distribution company was approached directly by a national competitor with a purchase offer of $12.5 million, they realized they needed someone in their corner. They asked Charter to review the proposal. Our valuation showed the company was worth significantly more, so we pursued additional buyers, prompting five letters of intent.
 
As a result, the national competitor increased its offer to $18 million+ and we closed the deal. The final transaction was valued at nearly 50% more than the selling shareholders would have achieved without a better understanding of the market and by "going it alone."

We're in your corner                                      

The Charter Group specializes in transactions ranging from $10 million to $100 million, providing personal attention that large cap M&A firms simply won't deliver to this segment, while providing a high level of expertise that local business brokers can't match.
 
We look forward to sharing our expertise with you and helping you achieve success as a business owner, whether you are ready to buy, grow, or sell your business. To get started, please feel free to call us at 616.235.3555 or fill out our consultation request form and we'll provide you with a complimentary and completely confidential consultation.

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