The Five Stages of Value Creation

Selling your business is a multi-step process that requires planning if you want to yield the strongest value.  Sunbelt Business Advisors walks through the five stages of value creation and what you can do to maximize the potential of your sale.

1. Identify Value

The value of your business is a critical component of your wealth and overall net worth. In fact, 80 to 90 percent of a business owner’s worth is directly tied to the value of the business. That’s why it’s essential for every business owner to work with a professional to perform a valuation on an annual basis. An annual valuation will give you an accurate baseline of what your business is worth; if you discover year-over-year growth on a consistent basis, it can help you project potential growth.

Working with a professional will require a significant investment of time and money in the beginning, but following valuations should be easier over time.

2. Protect Value

Once you have a valuation under your belt, it’s time to take stock of personal and professional risks and the resources that will help you protect your value.

In a personal capacity, the value of your business could be dramatically affected by the Five Ds – death, disability, divorce, distress, and disagreement. It’s also important to consider how financial changes can affect the value of your business. These threats include market risks, diversification, any personal loans or debt you may carry, loss of earning power, and the costly possibility that you may need unexpected, long-term care in your golden years.

Your business presents a variety of risks to your valuation, too. Customers, legal issues, a volatile economy, and the environment can all threaten the value of your business. Internal risks include key employees, partner disagreements, and the technology and the machinery you own.

Sunbelt recommends that you rely on a team of professionals including your attorney, financial advisor, and CPA to consider your risks and the options that are available to help you mitigate them.

3. Build Value

Business owners also can grow the value of their business by increasing their cash flow and creating efficiencies or maximizing their intangible assets. Intangible assets are known as “knowledge capital” and comprise four critical areas:

• Human – the value of the company talent currently on your payroll
• Structural – the value of your systems and intellectual property
• Customer – the value of the customer relationships you’ve cultivated
• Social – the value of your brand and culture

Sunbelt Business Advisors can help you review these intangible assets and explore options that will help you build value by growing your pipeline and optimizing your knowledge capital.

4. Harvest Value

After years of hard work, it’s time to cash in on the fruits of your labor. Harvesting value focuses on selling or otherwise transferring the business to the next generation of leadership. One other possibility is scaling back the time you commit to managing the business and becoming a silent partner who has the ability to take advantage of all of the business successes and profits. This gives you the best of both worlds – the profits you’ve worked so hard to yield, and the freedom and free time that you deserve.

5. Manage Value

At this stage, the value of your business has achieved full maturity. This is when a business owner is focused on managing their personal value and personal finances to ensure they can become financially independent of the business. By managing the value of both your personal wealth and of your business, you have the opportunity to consider a variety of options when it’s time to exit the business you’ve built. It’s important to dedicate as much focus on your personal finances as on the success of your business. By creating your own personal wealth, it will give you an opportunity to fully retire and enjoy the fruits of your hard work.

If you are exploring your options and wondering how you can transfer your business to the next generation of ownership, contact Sunbelt Business Advisors. We can help you plan for each step of value creation and ensure that you yield maximum returns for your business.