Today we come to the end of what was hopefully a power-packed short masterclass series with Todd Perry on building value in your business. Specifically if you’re thinking of selling a business in 5-10 years. These are measurable factors that help make an impression on a new business acquirer. Let’s remind ourselves of what those are ahead of the final pieces of this puzzle.
The 8 drivers of company value are:
- Financial Performance - The financial history that reflects revenue and profit is a crucial element. Additionally, it also shows your record-keeping abilities to ensure potential growth.
- Cash Rich Exit - The likelihood to grow a business and determine the growth rate for the future prepares brands for a cash-rich exit when selling to third parties.
- Switzerland Structure - This is the company dependency structure. It helps to assess if your business has a low or high level of dependency. Brands with higher independence with respect to employees, customers, suppliers, and others have high company value.
- Cash Flow - The ability of a brand to attract and acquire more cash.
- Recurring Revenue Hierarchy - The proportion of the revenue automatically generated in an annuity-type structure.
- Monopoly Control - A brand's unique selling proposition. The ability to stand out from competitors with a competitive advantage.
- Customer Satisfaction - It identifies if the brand has high repurchase numbers from customers and high referrals.
- Hub and Spoke - The number of decisions that have to pass through the business owner to operate a business smoothly
Today we’re going to focus on 3 things to serve the end-game of a cash-rich exit, followed by a fulfilling and secure life after sale.
Identify Family Interests for your future
There are many ways to plan for family financial security ahead of a business sellout. Todd talks about an example of how setting up a family trust for his children, in-laws, and parents gave his family the opportunity to get unclaimed capital gains exemptions.
Discussions related to a company sale are essential ahead of time with children, partners, or other significant people in your life. Todd clarified to his children how they were going to sell the business and take interest from it. And perhaps more importantly for him, he was able to have interesting conversations with his children about how they would support different charities with the money they would receive.
The benefits of Tax Planning
One of the greatest advantages of involving a third-party consulting expert in your sale is that business owners can unlock a myriad of tax benefits on cash-rich business exits. Todd says, "I have to give a lot of credit to PwC, they were pretty aggressive on the tax side of things. And I think at the end of the day, the way we worked everything out, I paid a relatively small percentage in tax. And there is a tax bill owing when I pass away, but we've taken out some life insurance to cover that."
He has always focused on minimizing tax while maximizing the enjoyment of business transactions. Sometimes the whole tax planning program for a business transaction is an afterthought. This can drastically affect the level of tax returns and benefits that impact financial freedom and security.
An Advisory Board for advanced planning
An advisory board meeting with important consultants like corporate lawyers, personal lawyers, accountants, financial advisors, and insurance agents is essential to strategize a cash-rich exit. The board of advisors for a company can also act as personal advisors when a business owner wants to sell the company. This team of advisors helps to plan maximum tax benefits and financial freedom for future ventures once the business transaction is complete.
For more information on maximizing tax benefits and consolidating your financial freedom after a cash-rich exit, please listen to Todd Perry's conversation with Colleen O'Connell-Campbell.
Listen to the entire podcast here: