business development
TransferableVALUE By Allen Brown
T
he Fall 2018 issue of American DBE Magazine published an article titled “Transferring DBE Ownership,” which discussed how to transfer a certified ACDBE/DBE firms to new owners, while maintaining the company’s certification as a Disadvantaged Business Enterprise.
These are not the only questions, but by starting with these, a business owner can get to where they need to be to ensure the transfer is most successful. Remember, success is contingent upon the degree to which a person accomplishes their goals; and there are several goals to achieve when transferring a business to new owners.
This article offers some additional considerations when transferring the ownership of a business to new owners. For that process, here are six questions that need to be answered:
For most business owners, the equity in their privately held businesses is between 70 and 90 percent of the assets held in their total personal portfolio. According to John Brown, author of “How to Run Your Business So You Can Leave it in Style,” owners often ask the wrong question when seeking to leave their business. Instead of asking what is the most they can get -- under the most favorable terms and conditions – they continually ask, ‘How much is my business worth?’ Asking the wrong question is the outcome of having a clear, but misguided perception of what’s important; and this can be called an honest mistake. The business owner
1. Why are you transferring the company? 2. Who are you transferring the company to? 3. When should the transfer take place? 4. How should the transfer be completed? 5. How much of the business will be transferred?
often presupposes what they’ve built is more valuable than it actually is, and then seeks validation of this belief. But spending the appropriate time focused on creating and increasing transferable value will result in a higher business valuation. It also will accelerate the total value of the business, resulting in what is the true measure of success when an entrepreneur is selling a business – net cash after tax. Transferable value includes both the value of the business assets and current contracts; it also includes the future value of the business based on its goodwill and future capabilities. The measure of success for a buyer when purchasing a company is the current value of a consistent stream of income, plus the potential for income growth that’s possible from increased effort, improvements and updates. Therefore, while selling the current assets of a business may provide a nice Winter 2019 //
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