How to protect your client’s business value from unplanned, chance events.
As we all know, there are rarely good surprises in business. Record concurrent years of positive economic growth are behind us, with an unclear future. Risk exposures beyond our control loom daily — tariffs, trade wars, industry slowdowns, recession, partisan politics or international crisis. Of equal concern, internal operating risks abound — increasing pay rates, hiring difficulties, technology edge and compliance requirements to name a few. Most business owners want to enjoy the value that took years to develop. So how can we help them protect and grow that same value, regardless of the surprises that may occur?
First, there’s no insurance product available for protecting business value. Even though it’s common to have up to 85% of an owner’s personal wealth at risk and locked inside the business. Business value isn’t insurable. Second, there’s good news – as an M&A Advisor, you already have the know-how to determine value, a key starting point for the process. You may only need to ask different questions of your client to engage them to grow and protect value. Let’s start with understanding the definition for this simple strategy and process: Business Preparation.
Business Preparation – An organizational strategy that prepares the business to be and remain in a constant ‘readiness’ state, so that at any time, for any purpose, value is optimized.
Simplified Value-Prep, the proven process to grow and protect business value, was developed exclusively for M&A Advisors to mitigate the risks of a ‘false start’ when taking a client’s business to market. The dismal statistic — over 50% of businesses (and owners) are unprepared to go to market. Informing an owner there is a ‘value gap’ between owner value expectations and the market is difficult, but necessary. Especially since only one-third of businesses that eventually go to market are successfully sold. Consequently, stakes are highest at the most critical time when an owner counts on you to extract the maximum value of a lifetime of work.
Timing can also be unfavorable under the pressure to sell, creating less than ideal conditions for maximizing value. Without proper preparation, business value is at significant risk and you have an uphill battle to get paid for your investment of time. Using time as an ally, Simplified Value-Prep is the proactive remedy to counteract the odds of success, making timing of a sale irrelevant.
Using an acronym of C-O-A-CH – Calculate, Orient, Adapt and Choose, the Simplified Value-Prep process utilizes data and questions to lead a business owner to protecting and growing value. Preparation starts with understanding current business value and those factors which may increase or reduce value. The current value state (now) is compared to the desired value state (future) with specific steps on how to bridge any ‘value gaps’. The business owner then takes action to close any gaps that may impact value. The connotation is that Simplified Value-Prep leads to answering a single question, ‘Are you ready?’. That question relates to the readiness to confront any chance event or unforeseen opportunity the business may face, as well as addressing any ‘value gaps’ in personal cash flow the business may be able to close. In essence: value rises, when there’s no surprises.
What are the benefits to the client’s business for being prepared?
- Preparation makes timing irrelevant to both opportunity and risk. The business is always ready.
- Personal cash flow and the invested wealth locked inside the business is ‘protected’.
- The business can withstand chance events and thwart potential value impairment.
- Value sustainability becomes a part of overall business strategy, ensuring attention.
Education is your bridge to business preparation success. Consider taking Course #472 at the 2020 M&A Source Spring Conference in Kentucky to learn more on how to: educate a client on business preparation, financially justify your value-prep services, convey the 12 key readiness factors, and work through an actual value-prep case study in small groups to hear how others make value-prep recommendations.
One thing is certain — if you choose to do nothing with business preparation in the upcoming year, chances are you may overlook an earnings opportunity, or risk your time, money (or both) in a client who is unprepared. Now more than ever before, these words ring true on value, “The motto of the wise is, always be prepared for surprises.” I hope to see you in class!
David Wimer, CBI, M&AMI, is Sr. Vice President, Murphy McCormack Capital Advisors, Lewisburg, Pennsylvania. Mr. Wimer is the creator of the Simplified Value-Prep process and teaches Course #472: Business Preparation Using Simplified Value-Prep for M&A Source. He may be contacted at email@example.com.